Sunrise over the Sierra Madre Mountains and the Ameca River, Nuevo Vallarta, Mexico
The Hawking Portfolio is an “Income-focused” portfolio constructed from a pool of Closed-End-Funds (CEFs) and does not rely on continuous regular adjustments to manage – the plan is to simply re-invest the “income” generated (since this is not currently required to supplement other income streams) so as to promote geometric growth. However, occasionally I will review the holdings in the portfolio and may make some adjustments. Since we have just closed out the first quarter of 2022 I have chosen to perform this review/adjustment at this time and this review will describe this analysis.
Current holdings in the portfolio are shown below:
and performance to date looks like this:
comfortably out-performing the benchmark AOR Fund.
The objective of this portfolio is to generate “income” of at least 8% from dividend distributions (many of which are paid monthly) that means we need to be close to 100% invested at all times. Funds are chosen based on dividend returns and Fund price relative to Net Asset Value (NAV) i.e. whether the fund is selling at a discount or premium to NAV. If I naively assume that prices may revert to NAV then I can rank Funds based on these two inputs:
The above figure shows my current list of assets from which I might choose to construct my portfolio. Suro Capital Corp (SSSS) is excluded from this list since distributions are not consistent and it is difficult to assign a reasonable “yield”. The 54.95% shown in the top figure (data from Yahoo) is clearly not a sustainable number – something like ~10-15% might be more realistic – but this fund does not have a lot of history and is currently held as a “Vegas” shot.
Based on the above rankings and current holdings I plan to make adjustments that look something like this:
Shares highlighted in Red in the “Shares Required” column will be sold with proceeds being used to buy shares in Funds highlighted with a dark green background. The majority of shares to be sold are presently showing a “yield” of less than 8% with the majority of funds to be bought showing yields of greater than 8% (with the exception of DHF at 7.9%). I also try to retain a reasonable level of diversification in the portfolio so I have chosen to hold KYN in the energy sector and to close my position in FEN. For similar reasons I am adding shares of FAX and selling current holdings in IAF since these funds are both Australia-focused. This allows me to reduce the size of the portfolio to 28 Funds. Note that these adjustments fill some of the gaps near the top of the rankings list (e.g. IGD, KIO, DHF…..).
Apart from monthly re-investment of dividends these should be the last major adjustments for at least another quarter.
David
David,
I have three portfolios operating similar to the Hawking. I don’t track two on this site. Combining the IRR values for all three using the Investment Account Manager software, I just update the results and my data goes back one month earlier than your results. Thus far the three “income oriented” portfolios are outperforming the AOR benchmark by 8.7% annualized. While it is still early in the game, the “Hawking model” appears to be quite successful.
Lowell
David,
I have been following this portfolio with interest for a while. I find it interesting that you subtracted discount from yield to come up with a score “naively”. I would have thought you might use a formula more complicated. Is that your main criteria for top 20 minus the diversity and high flyer?
Steve
Steve,
Yes, that’s my KISS methodology and not particularly clever – but it seems to be working ok (at least over this time frame). If you have any other suggestions I would be pleased to take a look/consider them. And yes, apart from the diversification and high flyer aspects these rankings are my primary selection driver. Unless there is a strong case to be made I will try not to sell anything paying over 8% dividend even if not in the “top 20” – i.e apply a buy-and-hold mentality.
David
David,
Oh, I have no wisdom or suggestions :). It seems in the short term to be very successful. I assume that you are using an IRA or similar tax-deferred account to maximize the dividend contributions.
Steve
Steve,
Yes, this portfolio is held in the Canadian equivalent of a Roth IRA.
David