Author: Andrew Schornack
Model: Financial Services
Disclosure: Long TWGP
The portfolio experienced the first negative return month since August 2010. From September 2010 – February 2011, the model reported returns exceeding my expectations. As I mentioned in the first investment report in November 2009, the goal of the portfolio is returns of 10-15% per annum. More recently, we have added the goal of a minimum model dividend yield of 3%. Given the proper research coupled with the markets’ strength and rebounding economy, the returns of the model have exceeded the goal since inception through March 31, 2011.
In the month of March, no changes were made to the portfolio. We discussed in February 2011’s investment report the dramatic decline in price of Tower Group, Inc. (NASDAQ: TWGP). Shortly after the decline and the published report, TWGP announced an increase in its stock repurchase plan of $100 million. The press release indicates this is an increase to the existing $10.2MM still available on the existing plan. The total of $110.2MM provides for the ability for the company to repurchase an estimated 4,585,934 shares at the closing price on March 31, 2011. According to TWGP’s proxy filed with the SEC on March 16, 2011, on March 8, 2011 there were 41,977,270 shares outstanding. This provides the company opportunity to purchase roughly 10.9% of the shares outstanding under the plan. It is not expected they will enter the market all at once, but I use this as a baseline for estimating the impact of the plan if executed. The company has been active in repurchasing stock in the past year.
I continue to research investment ideas in the regional bank and insurance sectors. Given the existing yield curve, rebounding economy, and the likelihood of a rise in interest rates in late 2011/early 2012, these investment areas may provide for attractive opportunities. My investment strategy has always been rooted in a value investor’s approach, through using bottom-up investment analysis, management review, and competitive positioning to seek the best opportunities in the financial services sector.
The portfolio currently provides a monthly dividend stream. This is driven by the composition and historical timing of dividends from the different stocks in the portfolio and could change at any time. A cash position in the portfolio provides the portfolio flexibility to respond to market opportunities, as well as providing some additional protection against market pull backs.
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Sources:
“Tower Group, Inc Announces Stock Repurchase Program” Tower Group Press Release, 3/4. https://www.businesswire.com/news/home/20110304006164/en/Tower-Group-Announces-Stock-Repurchase-Program
Tower Group Definitive Proxy Statement,
