The Great Crabtree Technology Portfolio Rebalancing Act
In late May, we completed the quarterly re-balancing of the Crabtree Technology portfolio. This process always begins with the running of our quantitative screen, which we did on May 19. Overall, our mid-May quantitative screen contained 88 names, down slightly from the mid-February model. The Crabtree Fund itself continues to always hold 50 stocks, 90% of which qualify for inclusion by “making” the screen.
Sold out of the model were Accelrys (ACCL), American Software (AMSWA), Asiainfo-Linkage (ASIA), Aviat Networks (AVNW), Bruker (BRKR), Cabot Microelectronics (CCMP), CareFusion (CFN), IBM (IBM), ICU Medical (ICUI), Magic Software (MGIC), Mine Safety (MSA), MTS Systems (MTSC), Portugal Telecom (PT), Telenav (TNAV) and XO Group (XOXO). Asiainfo-Linkage was the target of an M&A transaction and Bloomberg reported in early May that ICU Medical was working with J. P. Morgan Chase to sell itself.
In the case of ICUI and ASIA, there was already enough of a buy-out premium embedded in each stock for us to be convinced that waiting for further appreciation put us in the position of being risk arbitrageurs, rather than long-only portfolio investors. So we sold them both.
Replacing these 15 companies were new positions in MaxLinear (MXL), Simcere Pharmaceutical Group (SCR), Electronics for Imaging (EFII), Euronet Worldwide (EEFT), M/A-Com Technology Solutions (MTSI), Telecom Argentina (TEO), Sagent Pharmaceuticals (SGNT), Greet Dot Corp. (GDOT), Spirit AeroSystems (SPR), VimpelCom (VIP), TE Connectivity (TEL), DSP Group (DSPG), Himax Technologies (HIMX), ICON plc. (ICLR), and inContact (SAAS).
The first 13 of these new names were from our quantitative model and the last two were exceptions that we reserve for deserving firms that possess the three Crabtree attributes, but which our model won’t select, typically because they have premium valuations.
Additionally, six existing positions that had appreciated were trimmed back to standard 2% positions. These were Ambarella (AMBA), CalAmp (CAMP), Gencorp (GY), Measurement Specialties (MEAS), RigNet (RNET) and Virtusa (VRTU). While in theory we’d adjust all our positions up or down to be 2% at re-balance time, trades cost money, both in commission and in the bid-ask spread. So in this case we chose six names that had grown to more than 2.4% of the fund.
Overall performance for the Crabtree Technology model in May was positive, but lagged relative to its benchmarks. The model rose 1.8% in the month, compared with a 3.9% gain for the Russell 2000 benchmark. Our internal benchmark, the Merrill Lynch Technology 100 (MLO) rose by 3.2% during May. The most widely held technology ETF, the State Street Global Advisor’s Technology Select SPDR (XLK) rose 2.5% in May.
June has been quiet so far, but with the market starting to roll over a little bit, there may be some fireworks before we get to the Fourth of July. We’ll have a full monthly and mid-year report in early July. As always, if you have any questions or comments, you can reach us any time at email@example.com.
The investments discussed are held in client accounts as of May 31, 2013. These investments may or may not be currently held in client accounts. The Merrill Lynch 100 Technology Index (MLO) is an equal-dollar weighted index of 100 stocks designed to measure the performance of a cross section of large, actively traded technology stocks and ADRs. Investors cannot invest directly in an index. Indexes have no fees. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
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Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.
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