Top Brands Portfolio a Q3 underdog; Samsung, Toyota join index

The Brand portfolio I constructed late last year did relatively well for the first two quarters of this year. Now, with third quarter ending last week, the YTD performance is merely average, beating the MSCI World Index but trailing the S&P 500.

The portfolio holds the constituents of Interbrand’s top ten most valuable brands in 2011 (table 1).

As you can see this portfolio is skewed towards technology stocks but should, nevertheless, give investors some form of diversification benefits. Furthermore, many of the constituents are considered as 'Blue Chips', delivering stable earnings and paying solid dividends. The average FY1 P/E of the portfolio is 13.9, which is close to S&P500's valuation of 13.

Third Quarter

The portfolio returned only 2.9 percent in third quarter, while its benchmarks, MSCI World Index and S&P 500 gained 5.7 and 6 percent respectively. During the quarter, investor sentiment took a slight turn, giving riskier smaller-cap investments greater proportions in investors portfolios. At the same time the larger defensives have been the slow movers in the stock market.

The two biggest losers of this quarter within our portfolio are Hewlett-Packard (NYSE:HPQ) and Intel (NASDAQ:INTC) having declined by 15 percent each.  YTD Hewlett-Packard has lost nearly 34 percent of its value and my colleague Matt Bolduc has highlighted HPQ as a potential value play following the price drop.

On the other side of the spectrum we have Google (NYSE:GOOG) and Apple (NASDAQ:AAPL) as the largest gainers, having gained 30 and 14 percent respectively during third quarter. Apple successfully launched its iPhone 5 during the quarter and analysts have high hopes for number of units sold in the coming quarters.

Year-to-date

For YTD performance it doesn’t surprise me that the Brand Portfolio managed to beat the MSCI World index, which includes the troubled European stock markets. The European market has not been able to follow its peers in the US with its value having ‘only’ increased by 11.6 percent compared to the 15.3 percent gain in S&P 500.

Comparing the risk-adjusted performance of the three portfolios/indices, using Sharpe Ratio, we see that the S&P500 is leading the race. For the first half of the year the Brand Portfolio was sitting comfortably at the top but has failed to maintain its position. 

For the remainder of the year we could see some correction in the stock market, as my colleague Peter Garnry highlighted that stocks have outrun expectations by a wide margin this year. Such correction is however unlikely to weigh heavily on the blue chips in the Brand Portfolio.

Constituents of the 2013 Brand Portfolio

Interbrand has newly launched their list of 2012 most valuable brands. Continuing with my methodology of the Brand Portfolio, table 2 holds the constituents of your 2013 portfolio.

Only minor transactions are necessary when rebalancing your portfolio for the 2013 investment season. Samsung Electronics (ETR:SSU) and Toyota Motor Corporation (TYO:7203) replace Hewlett-Packard (NYSE:HPQ) and Walt Disney (NYSE:DIS).