LONDON —During the past month, the release of the first live rounds in the US/China trade war weighed on the portfolio’s two Chinese stocks, while growing Capital Hill pressure on big tech together plus the summonsing of Google’s CEO to Washington hurt Alphabet. But another storming month for Amazon.com and small improvements in prices of the portfolio’s other constituents was almost enough to offset the bad news. The overall result was after the exceptional run in August, the Biznews Global Share portfolio took a breather in September, with its value easing back from $393,645 to $390,069. The portfolio was established in December 2014 with seed capital of $200,000. It has achieved an annualised return of 39% in the 46 months of its existence. – Alec Hogg
Highlights:
Amazon.com: Our experience with Jeff Bezos’s ever-mushrooming giant makes a compelling case for riding your winners. And also, to not pay attention to daily price vacillations. When we bought into Amazon in December 2014, the shares were easily bought at $327. In the past month the price per share rose $47, which would have been a barnstorming show four years ago, but which at current levels translates into a modest 2.4% gain. Amazon peaked at almost $2,040 a share in the month before easing back as investors reflected on the risks of the trade war. Our view is that although speculating on big swings is a fascinating cerebral exercise, investing in stocks requires an understanding of and belief in the business being bought into. Amazon still ticks all the right boxes.
___STEADY_PAYWALL___
Share buybacks: With US companies awash with cash, there remains strong momentum for returning value to shareholders through repurchases of stock. This practice tends to provide a firm undertone to the affected company’s share price. During the second quarter of 2018, buybacks by S&P500 companies hit a new record of $190.6bn, up 59% on the same period of 2017 and edging the previous peak of $189.1bn set in the first three months of 2018. Our portfolio member Apple accounted for more than 10% of this total, investing a chunky $21.9bn into its own shares during the June quarter, in line with the $22.8bn it repaid shareholders in this way during the March quarter. In the past 12 months, Apple has bought back $64bn worth of its own stock. Two other portfolio holdings invested over $2bn each in share repurchases during the quarter: that took Microsoft’s total for the 12 months to $10.8bn while Alphabet’s stands at $6.3bn.
Chinese stocks: Whether US president Donald Trump’s miscalculated or not in his negotiation position on the trade war against China is no longer relevant. A 10% tariff was imposed this week on roughly half the $500bn a year which the US imports from China. Trump also warned unless there’s a settlement before the end of 2018, those tariffs will jump to 25% in January. And thereafter, who knows? The antagonism has little direct impact on the two Chinese internet giants in our portfolio, but the share prices of both Tencent and Alibaba eased back in the month as investors fretted over what the future holds. The general principle of investing in the underlying company rather than trying to call the geopolitical trends is appropriate here. The outlook for both businesses remains bright.
