Maintaining a Balanced Portfolio: February 2017

The Nobel Prize winner Harry Markowitz stated that ‘a good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies.’

In building my portfolio I strive for balance - with respect to companies, sectors, high yielders and high dividend growth stocks. During my relatively short time as a dividend growth investor I have learned that this balance is much more like an art than an exact science.

For instance when looking at the table below, it is clear that my actual portfolio diverges quite a bit from what I initially set out as an ‘ideal’ portfolio sector allocation.


Looking at the differences in portfolio allocation between ‘Ideal’ and ‘Actual’ in a chart makes the contrast even more clear.

One reason I am ‘over invested’ in Real Estate is the fact that 2015 and 2016 offered many attractive valuations in this sector. For instance I added to my W.P. Carey position a number of times during dips - resulting in the fact that this REIT is now a cornerstone position of my portfolio. The same goes for several Healthcare and Lodging REITs (Omega Healthcare InvestorsLaSalle Hotel Properties, etc) that were attractively priced.

On the other hand I struggled (and continue to struggle) to find attractive valuations and dividend growth in Consumer Staples. Unilever is on my radar but is currently showing huge gyrations due to a possible takeover bid and subsequent retraction thereof by Kraft Heinz. I bought shares of Diageo in early 2016 for ~$102. I would like to add more to this position if the price would come down to around ~$104. CVS  remains an attractive candidate due to it’s high dividend growth rate. However, with 35 shares in my portfolio I am most likely done adding here.

Bottom line for me is that any ‘Ideal’ Sector allocation is always much more like a guideline than a law. I will likely hold off on buying new Real Estate companies in the near future and try a little harder to find good value in Consumer Staples, Financials and Information Technology. I might even change my mind and add some Utilities.

However, with 38 high quality dividend growth stocks in my portfolio my main concern remains a stable, predictable and growing dividend pay-out. The diversification in sectors and companies - no company position exceeds ~6% - continues to provide me with protections and opportunities.

How do you approach portfolio diversification? More or less rigid than I do? Leave a comment/reply to share your thoughts!

2 thoughts on “Maintaining a Balanced Portfolio: February 2017”

    1. From a dividend growth perspective Utilities tend to be lacking - they are usually bound by certain geographical areas and legislation and limited in the sense of innovation and pricing power. I also think that the sector is ripe for disruption, see for instance

      However, I have been looking at AEP lately which seems to make the right moves in terms of innovation: It also pays a nice dividend. So perhaps I will add my first Utility this year.

Leave a Reply