Covestor

The month of July was a great month in the overall market. Stocks across the board saw significant gains.  The portfolio finished behind the benchmarks, XLF, VNQ, and S&P 500, but I don't find this necessarily concerning as the portfolio still posted strong monthly gains. As consequence of the portfolio's structure, the portfolio tends to benefit by dropping less than the benchmarks when the benchmarks decline at the risk of not always exceeding the benchmarks when the benchmarks see substantial increases.

Over the past month and into the first week of August, I have taken a steps to retool the portfolio's positions. LXP and NYB by design have historically been overweight positions in the portfolio as these companies were and continue to be strong companies with solid dividends. However, the market has regained its footing, NYB and LXP have reported significant gains, and although I believe the market will continue to be range bound for the next several months, I felt it was necessary to bring the positions to 5-10% of the portfolio.

A new position at the end of the month is a sum of the parts coupled with a macroeconomic investment theory. KKR was added to the portfolio on July 28 shortly after its IPO. From a macro level here is my shorthand: (1) Businesses continue to build significant cash reserves and reduce leverage on their balance sheet, making them a prime target for a PE firm (2) Multiples and competition on business acquisitions have been reduced (3) KKR is and will continue to be a brand name in the private equity business (4) Last but not least, PE firms make investments focused on cash flowing businesses, great for the current economic cycle. In summary, KKR is a firm trading at a discount to the sum of its parts and has the ability to take advantage of the current economic cycle by buying into businesses at low multiples of cash flow and building value through the use of financial leverage/debt reduction and the increase in trading multiples in the coming years. There are certainly risks with the given trade, but that is why it is a smaller position in the portfolio.

The portfolio has a good cash position and continues to be positioned well to take advantage of the ups and downs in the market. There will be additional investments in the coming months focused primarily on increasing the portfolio's yield and diversifying its risk within the financial/REIT sector.

As always, the goal of the portfolio is to pursue a stable dividend income with the opportunity for capital appreciation. Thanks for subscribing.