In brief, it was a good year for client accounts in 2013, both in terms of relative and absolute returns.
While the regulators have always been sensitive to performance “advertising”, and writing such can attract the wrong attention, the fact is we beat the SP 500 this year in the majority of our pure equity accounts (based on data through 11/30/13 and eyeballing the larger accounts through December 27 YTD), and also beat the benchmark 60% SP 500 / 40% Barclay’s Aggregate return as well, with the relative performance being better in balanced accounts than pure equity accounts.
The other element to this is in terms of saying what we did well and not so well this year, and talking about performance, is that Trinity Asset management is an honest and ethical shop:
We custody client assets with discount brokers, primarily Schwab, so we don’t generate statements for clients. The key element to the Madoff and any other brokerage scam or bilking of client assets is that the con or scam artist has to generate their own statements for the scam or Ponzi scheme to work. By keeping statement generation independent of the investment manager, it protects the client;
Performance reporting is time-weighted versus cash-flow weighted and is reported after management fees and commissions;
Our fees are reasonable, and we rarely turn anyone away that wants to talk to us about investing, regardless of the size of the account;
We communicate regularly with clients, usually sending out an email when we trim or sell a position, providing the client with a gain or loss number;
For taxable accounts we try and keep capital gains to 10% of the account size. This year, for the accounts I’ve run for clients as of last week, we’ve managed to keep capital gains to 2% – 5% of total account size. The point being we are very conscious of taxes and capital gains.
In brief, here is what we did well and not so well in 2013, for client accounts in terms of home-runs, triple, doubles and strike-outs:
1.) Our big home run this year was Facebook, where we made our first acquisition under $20, in 2012, and then accumulated through the first half of 2013. Here is our chronology of Facebook on our blog. We still maintain a 3% – 4% position in the stock, although it remains overbought. FB doesn’t start lapping tough earnings, revenue and mobile comparisons until the July ’14 earnings release;
2.) Schwab (SCHW) was another big home run this year, as the stock is up nearly 80% YTD, as of Friday, 12/27/13. We were long and wrong the name, from the market bottom in 2009 forward, but it was only this year, that the capital gain caught up with the 4-year lag. Schwab will really benefit from the end of ZIRP as this SeekingAlpha article details in September, 2012. We haven’t reduced our position in the stock, but given the hidden earnings power from the waived management fees, the stock’s increase this year has discounted some of that earnings growth. Still, Schwab wins as the retail investor returns to the market and trading improves, not just from higher interest rates;
3.) Our Treasury short (TBF), which also was too early in 2011 and 2012, paid off nicely this year, as well as our high-yield overweight. Like a lot of money managers we have been leery of the very low interest rates, but never suspected the 10-year Treasury yield would hit 1.38% in July, 2012. We sold our TBF in Sept – Oct ’13 on the news that Larry Summers was stepping away from the Fed Chair job, since the resulting rally in the 10-yerar Treasury took the yield on the 10-year below the weak employment report a few weeks prior. We have since begun re-loading the TBF. The TBF is the unlevered Inverse Treasury ETF. You can be more patient using the TBF as your Treasury short, than the TBT, which utilizes double-leverage;
Because we generated single-digit positive returns on our fixed-income accounts and fixed-income allocations, our balanced performance account returns look good. We traded the HYG successfully and continue to think that trading, rather than buy-and-holding will be necessary in fixed income the next few years.
4.) Boeing, Fed-Ex (FDX), United Tech (UTX) all were decent contributors to equity account performance in 2013;
5.) We sold all of ISRG at $490 and above in late 2012, and early 2013, Im of the opinion that like golf, “you buy (drive) for show, and sell (putt) for dough”. We sold all of our IBM too by $185 in April ’13 too.
6.) We were long no utilities or Telco after the dividend trade started to fade in late 2012.
Most of our sell decisions worked well in 2013.
What we didn’t do well:
1.) Sold our MRK at $45, and doubled-down on Pfizer, which was the wrong trade. PFE is still treading water in the low $30’s, while Merck rose another 12% into- year end 2013;
2.) We were long the SH in some accounts from late Jan ’13 through May (SP 500 short ETF) and it was a drag on performance;
3.) We had some under-performers like Intel (INTC), Wal-Mart (WMT), Coca-Cola (KO), etc. but fortunately they were weighted to not be a significant performance drag in 2013;
4.) Alcoa (AA) continues to frustrate although it rose 10% in December and 30% in the last quarter of ’13, but it was a drag on numbers for the first 9 months of ’13.
2014 will be a tougher year in our opinion. One sector we are overweighting early is Basic Materials, Alcoa (AA) still, Freeport (FCX) and US Steel (X), but a strong dollar could be an issue.
(In the first two days of 2014, we’ve already sold our XLF (not as a tactical trade, just to fund individual equities), and sold another 25% SNDK, a stock up 62% in 2013.)
Thanks for reading. We work to earn client trust and confidence every quarter.
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA