Portfolio results
The markets were relatively flat during the quarter. The S&P 500TR was down by (0.86)%, the Morningstar Total US Equity Index was down (1.20)% and the Nintai Proxy (70% Vanguard US Equities Total Market Index, 15% Vanguard Global Equities Total Market Index, and 15% Cash) was down (0.84)%. The Nintai Portfolio beat the averages gaining 0.55% net all fees. Year-to-date (YTD) the S&P 500TR is up 0.96%, the Morningstar Total US Equity Index is up 0.88%, and the Nintai Proxy is up 1.03%. The Nintai Portfolio is up 8.82% YTD net all fees.
Several stocks drove our performance YTD. Ansys (ANSS, Financial) was up 11.3%, Novo Nordisk (NVO, Financial) was up 31.4%, and New Oriental Education (EDU, Financial) was up 20.2%. Several companies brought up the rear with Computer Programs and Systems (CPSI, Financial) down 9.9%, T. Rowe Price (TROW, Financial) down 6.1%, Fastenal (FAST, Financial) down 10.2%, and Qualcomm (QCOM, Financial) down 14.7%.
The following is the breakdown of returns by 1YR, 3YR, 5YR, and 10YR and since inception.
* Includes management fee of 0.75% of AUM
**Vanguard Total International Stock Index (15%), Vanguard Total US Market Stock Index (70%), Cash (15%)
Portfolio changes
The second quarter continued to provide Nintai with opportunities to divulge positions at prices far in excess of our estimated fair value. We trimmed or sold out of positions in Coach (COH, Financial), Synaptics (SYNA, Financial), Novo Nordisk and Cognizant Technology (CTSH, Financial). By June 30, 2015 we added three positions during the market tumble in the latter part of the quarter. These include CBOE Holdings (CBOE), Collectors Universe (CLCT), and Intuitive Surgical (ISRG). By the end of Q2, 2015, portfolio turnover was 37% year to date.
Portfolio positioning
The current P/E ratio of the portfolio is 16.0 or roughly 14% less than the current S&P 500 ratio. Projected earnings growth over the next five years is 12.5%, or roughly 25% greater than the S&P 500. Additional measures can be seen here on the Nintai Abacus report:
Thoughts on the quarter
Halfway through the year we are pleased with the portfolio’s performance. We continue to hold a considerable portion of our funds in cash (nearly 15% as of June 30, 2015) awaiting an opportunity to deploy capital. Unfortunately Mr. Market and all the wisdom of Wall Street continue to drive prices upwards. As we said last quarter – “We believe the markets are currently trading at fair value. We have absolutely no idea where the markets are headed in the short term, but we do believe returns over the next 5-10 years will be muted. To be prepared for the inevitable downturn we remain focused on downside protection – pristine balance sheets, generous free cash flow, wide competitive moats and management focused on generating significant returns on capital employed.”
As always, we remain extraordinarily grateful to our investment partners who entrust us with their hard-earned savings. We promise to invest this capital in the only way we know how – conservatively, dispassionately, wisely, and deeply cognizant of value. We hope everyone has a safe and happy summer.
