I have another Roth IRA portfolio update for you. If you’ve been reading my series for 2021, you may know that my portfolio is a bit overweight financials this year – so I’m counting on rising interest rates to help me outperform the overall market. Spoiler alert: interest rates have been rising quickly in the last month, but my portfolio is performing the worst it has against the overall market
A sign of a stable and intelligent person is to re-visit a thesis whenever presented with evidence counter to what was believed. So let’s do some introspection.. If the bond yields for treasuries are rising, why is my portfolio not catching back up to the market as predicted?
After looking into my portfolio’s performance, I’ve identified a few factors that are causing my thesis to be incorrect.
One big factor is the investments that comprise my Moonshot Growth fund. The fund actually borrows a lot of stocks that are or were in Cathy Woods’ ARKK invest. This isn’t necessarily a bad thing, but what it does is it makes it so many of those individual stocks’ performance is merged with the overall fund’s performance.
In the last month, ARKK invest is down around -6.5% compared to the overall market loss of about –2%. Unfortunately, an outperformance in other areas of my portfolio is needed to make up for the losses here.
In addition, the REIT portion of my portfolio has been underperforming a bit. Rising yields mean higher borrowing costs for real estate companies, and earnings that could potentially be impacted if not able to pass the costs on through rent/leases. Sharp interest rate increases conflict with the slow/steady nature that rent tends to increase. Borrowing costs may double in a matter of months, but you can’t raise rent until your lease is up for renewal.
Below, you will see each of my portfolio slice’s performance over the last month. The REIT slice is the worst performing section of my portfolio.
Now, let’s take a look at my Roth IRA portfolio performance so far this year.
- S&P 500 from January 4th – October 10th: +18.71%((402.49-339.03) / 339.03) x 100)
- My portfolio from January 4th – October 10th: +16.73%((53,276.22 – 6,000 – 1003.14) – 39,641.18) / 39,641.18 x 100
There is definitely still time in the year to outperform the market, but I think a combination of factors need to happen. My new thesis is: yields need to increase slowly, perhaps stay stable from here for the rest of the year. That way financials can benefit from increasing yields, high-growth stocks don’t get clobbered from a fear of inflation and REITs don’t do the same. But, we will see and my mind is open to be changed.
We will see! At least I’m having fun and getting my brain some exercise 🙂
Thanks again for reading, and happy investing!