Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm joined today by Matt Coffina--he's the editor of Morningstar StockInvestor newsletter. We're going to look back at his 2015 performance.
Matt, thanks for joining me.
Matt Coffina: Thanks for having me, Jeremy.
Glaser: You manage two real-money portfolios in the StockInvestor newsletter. What did your performance look like last year?
Coffina: We didn't have a great year. It wasn't a great year for the S&P 500 either. The S&P 500 was up 1.4%, including dividends; without dividends, it would have actually been down slightly. Our Hare portfolio was up 1.7%, so we just eked out some outperformance versus the S&P. The good news is that this was our fourth-straight year of outperforming the S&P. In the prior three years, we had a significantly larger margin of victory.
The Tortoise didn't do as well. It was down 1.3% for the year, underperforming the S&P by about 270 basis points. We were only up about 0.2% when you combine the two portfolios. So, we were trailing the S&P by about 124 basis points. It's not terrible, but I certainly hope to do better in the future.
Glaser: With your strategy, would you be surprised to underperform at any one given year?
Coffina: No. We have very much focused on the long term--the next five to 10 years. In our roughly 15-year history, we've underperformed in about five years and outperformed in the other 10. The goal is outperforming over a full market cycle.  was a great year for the Tortoise; it outperformed by close to 800 basis points. So, I just see underperforming [in 2015] as giving back a little bit of the gains we had the prior year. What we're really focused on is whether, through a full bull and bear market, we are able to outperform the S&P, and we've done that historically. I'm optimistic that we'll be able to do that through the next market cycle.Read Full Transcript
Glaser: So, looking at the winners and losers in your portfolio from the year, what did well? Were there any themes that emerged there?
Coffina: Sure. Our biggest winner by far was Alphabet (GOOGL). I think the market was really characterized by a lack of breadth last year, so a handful of large-cap stocks really drove the returns on the market. Most notably, the so-called "FANG" stocks: Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Alphabet--formerly Google. We only owned one of those stocks, and it was Alphabet. It was up 46% or so for us, and that was the biggest positive in our portfolio.
We also did well with consumer staples. We own four consumer staples stocks in the Tortoise. They didn't do very well [in 2015]; they've been struggling with some currency headwinds. But [last] year, all four of them outperformed the market. Visa (V) and MasterCard (MA) have been two great performers for us. MasterCard [has performed well for us for many years]; Visa has also been a great performer for us since we purchased the stock in 2014. Electronic payments is a business that continues to attract payment volume from cash and checks; both companies are continuing to grow very strongly, and the stocks were up double digits last year.
A couple of other winners that I'll just name briefly: Lowe's (LOW) has been among our top performers for four years in a row now. Novo Nordisk (NVO), Priceline (PCLN), and the eBay-PayPal spin-off--all of those stocks did well for us.
Glaser: On the flip side, what didn't perform so well [last] year?
Coffina: The biggest headwind for a lot of investors, I think, was energy, and we fortunately didn't have all that much exposure to energy. But the exposure we did have really hurt. I held National Oilwell Varco (NOV) much too long in the Hare portfolio. We realized a loss of 43% in 2015 on top of a loss in the prior year. That was the Hare's only energy exposure, but it did really poorly. It performed significantly worse than the energy sector as a whole, where obviously the problems are stemming from low oil and gas prices. In the case of NOV, that's causing excess supply of rig equipment, and that might last for years. I ended up selling NOV, but not before we had taken a big loss.
We own two midstream-energy names in the Tortoise--Enterprise Products Partners (EPD) and Magellan Midstream Partners (MMP). They also both underperformed the market significantly. Things could've been a lot worse for us in energy. [In 2014], we owned Exxon Mobil (XOM), we owned Schlumberger (SLB), we owned Kinder Morgan (KMI), Energy Transfer Equity (ETE). With all of these stocks that we sold, we avoided losses from the low 20% range to as high as 60%. So, fortunately, we sold those before things got really bad.
Other themes outside of energy: We didn't own a lot of basic-materials companies, but the ones we did own also really hurt: Potash Corporation (POT) and Compass Minerals (CMP). For Potash Corporation, it's a really tough agricultural environment; it's hurting fertilizer demand. Compass Minerals: It's the really warm winter we're having that's going to hurt salt demand this year. Some inventory will carry over to next year, so it doesn't bode too well for next year either. A couple of industrial names: Union Pacific (UNP) W W Grainger (GWW). We entered the year without much industrials exposure, and I ended up buying these companies at what turned out to be a pretty bad time--right before the industrial parts of the economy slipped into recession. American Express (AXP) and Discover (DFS) were also among our losers. Time Warner (TWX), CarMax (KMX), Berkshire Hathaway (BRK.A) (BRK.B), and Oracle (ORCL) are also companies that weighed on our performance last year.
Glaser: Matt, thanks for the performance update.
Coffina: Thanks for having me, Jeremy.
Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.
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