Looking Back On A Year Of Big Wins…
What a crazy year this has been. Hopefully, amid all of the chaos, you’ve managed to make some good money. After all, despite the roller coaster year, it’s still been a good one (at least for the market).
We should have known back in February that strange things were afoot when an apocalyptic winter blizzard and sub-zero temperatures invaded the deep south. We also saw laboratory scientists successfully create a xenobot, the world’s first synthetic lifeform. Heck, Captain Kirk himself blasted off into space on Jeff Bezos’ Blue Origin rocket. You don’t see that every day.
It hasn’t been any less wild for investors. 2021 will be remembered as the year when a determined group of traders banded together on social media and drove video game retailer Gamestop (NYSE: GME) to an astronomical 2,700% gain in a matter of days – toppling mighty hedge fund short sellers in the process.
The modern-day equivalent of David slaying Goliath.
Of course, everything has been set against the backdrop of Covid. But with the global economy in recovery mode, equity markets from Argentina to Denmark have been on the upswing. The big winner? Mongolia, with a commodity-driven gain of 116%. Here in the U.S., the S&P 500 has delivered a year-to-date return of 27%, on track for its best showing since 2013.
I’m pleased to report that our portfolio over at High-Yield Investing has more than kept pace.
As I write this, our portfolio has posted a gain of about 30%. In other words, we’ve outrun the market by about 170 basis points. And keep in mind, my premium service is focused primarily on income, not growth.
To put that performance in a more appropriate contrast, I like to compare it to the Russell 1000 Value Index. And on that basis, we’re beating this benchmark by more than seven percentage points.
It hasn’t been easy. Income hunters are still battling the market’s clear favoritism of growth over value. But that longstanding bias has grown less pronounced, a trend that continues to work to our advantage. And from a sector perspective, many of the dividend-friendly groups that lagged in 2020 bounced back nicely in 2021.
2021: A Year Of (Mostly) Winners
Energy certainly comes to mind. Thanks to strengthening demand and dwindling supply stockpiles, crude prices have reached multi-year highs, a welcome development for upstream oil producers.
For example, ConocoPhillips (NYSE: COP) is a name I’ve discussed several times. It’s delivered us a handsome return of 88% as I write this, and management plans to return another $7 billion to stockholders in 2022 through a combination of regular and special dividends.
As a reminder, we originally bought COP in March of 2020 – when things were looking outright bleak for the energy sector, the market, and the world overall. It’s a classic reminder that it can really pay off to buy great companies when panic takes hold.
Midstream pipeline owners have also benefited. Oneok (NYSE: OKE), for example, ripped off a 71.3% gain in 2021 before we got stopped out of this position a couple of weeks ago. But this still brings our total return on this position to 113% since adding it back in March of last year.
Real estate is another beneficiary of the return to normalcy. Longtime readers know that I’m a big fan of REITs. And property owners, perhaps the most impacted by the pandemic, have seen strong improvements in rent collections, leasing activity and other key metrics. Fortunately, over at High-Yield Investing, we’ve seen a number of our REITs bounce back in a major way – while others hardly skipped a beat at all.
And let’s not forget about lenders and insurance companies. They’re practically built to profit from changing interest rate winds. And they are indeed changing. For example, we own a fund that focuses on the financial sector and uses call options to boost our income. It’s ripped off a 52.5% return this year on the back of holdings such as JP Morgan Chase (NYSE: JPM).
While overshadowed, our fixed income weighting has also fared well. Our muni bond fund has returned 11.0% since my initial recommendation in late 2020, a return that looks even better when measured on a tax equivalent yield (TEY) basis.
But make no mistake, it hasn’t been a perfect year. Our cinema reopening play has struggled this year, losing more than 20%. Nobody bats a thousand., but fortunately, that’s an isolated example. And that unrealized loss has been more than offset by realized gains in holdings like Covanta (NYSE: CVA), which was sold at a 107.4% gain back in August following a buyout offer.
All in all, it was a fantastic year. Nearly all of our four dozen holdings finished in the green — and we pocketed over $10,000 in dividends and interest.
I hope you had a similar experience this year. But I would caution you not to become accustomed to seeing heady 25%+ annual gains. The market’s long-term norm is less than half of that. Still, let’s savor these wins while we can.
More importantly, as we flip the calendar over to a new year, I will continue to reposition our portfolio for a changing macro environment. We’ll likely see at least a couple of interest rate hikes from the Federal Reserve, among other things.
If you’d like to get your portfolio off to the right start next year, then consider checking out my latest research…
I’ve found a handful of dividend payers that I consider to be absolutely “bulletproof”. These picks not only have demonstrated the ability to hold up during any macro environment, but they consistently raise dividends year after year (on top of impressive gains).