What Makes a Slam-Dunk Portfolio?

Author: Frank Holmes
Date Posted: March 24, 2014 Read time: 7 min

As a native Canadian, hockey is in my blood, but after moving to Texas, the icy arenas changed to basketball courts, as the sole major league sports team in the city is the San Antonio Spurs.

We’re proud fans, too, as the Spurs currently hold the best record in the National Basketball Association (NBA).

You don’t have to be a basketball enthusiast to see the commitment, values and drive this team exerts. In fact, the Spurs are a great illustration of how U.S. Global Investors works to produce a winning portfolio.

If the Spurs were a portfolio, they would be a top performer.
The Spurs are No.1, but did you know there’s only one Spurs player who makes the NBA’s official 2014 leaderboard? Broken into offensive and defensive leaders, the list ranks the top five players in the following six categories: highest points, assists, field goals, rebounds, blocks and steals. Out of 30 top slots, only one was filled by a Spurs player.

Tim Duncan is ranked number five under the defensive category for blocks. The Spurs do not strive to fill the leaderboard with their players, though – they don’t have to. Their emphasis instead is on the values, consistent performance, and quality of their players.

For the fifteenth year in a row, the Spurs have won a record 50 games during a season; a true model of consistent, high-level performance. This team has also scored four NBA championships since 1999, and although the Spurs continue to see faces change on the team as the years pass, the process to incredible performance has remained constant.

You don’t need 12 MVPs on a team to win a championship…
And you don’t necessarily need all number-one stocks in your fund’s basket to outperform the S&P. As I showed in my recent commentary, the Holmes Macro Trends Fund (MEGAX) outperformed the S&P 1500 Composite Index by nearly 10 percent over the last year. See the fund’s performance history.

To selectively choose a stock, there are a number of factors our portfolio managers here at U.S. Global Investors base their decisions on, particularly within the model used for the Holmes Macro Trends Fund (MEGAX). We look for high-quality growth companies with robust fundamentals in strong sectors of the market.

Currently, the top-performing sectors are technology, health care, materials, and consumer discretionary.

Technology is a leader.
What makes the technology sector full of cleverly strategized stocks is what our Director of Research John Derrick likes to call an emphasis shift. A major tailwind within the tech sector is that names such as Facebook, Pandora and OpenTable have shifted their focus from growing market share and users to monetization.

For example, Pandora, an Internet radio company offering free music, has essentially become the go-to name for many music listeners. Even among its competitors including Spotify or Apple’s new iRadio, the incredible growth Pandora has seen over the last few years has allowed it to monetize its business model by capitalizing on its dominant position in the market, along with shifting focus to strategize ads based on specific user profiles, driving revenue higher.

This star player builds bench strength.
One company, which technically falls into the discretionary sector, but has stood out in the technology space, is Tesla Motors. Shown below, the company recently is outperforming the S&P 1500 Technology Index.

Tesla Motors Showing Strong Performance
click to enlarge

Known for its innovation of electric vehicles which use battery packs, the company is making smart moves in not only the automotive industry, but in technology and utilities. It’s this forward thinking that puts Tesla on our team as a strong player.

Tesla has the potential to be a game changer among its competition. An example of this can be seen even in the Tesla showrooms, which provide consumers an experience in itself. These showrooms are similar to the state-of-the-art design we saw when Apple stores first opened their doors.

The company is on a “quest to disrupt a trillion-dollar car industry,” and is the best-positioned autonomous car on the market, according to Morgan Stanley.  “Tesla’s fleet is 100 percent electric and connected. As the role of software engulfs the car, the world’s only Silicon Valley-based car company has the upper hand.” This is significant because, as the report continues, autonomous cars contribute $5.6 million in economic savings globally.

So who’s on your team?
Take a look at the areas in MEGAX that we see as great performers. The industry breakdown, along with the top 10 holdings, should give you a better idea on where we are looking and how we are strategizing to try and achieve winning performance for our shareholders.

At U.S. Global Investors we believe a slam-dunk portfolio can be achieved by actively selecting companies that exhibit strong performance and values, while located in sectors that are market leaders.

The San Antonio Spurs went for their twelfth-straight win on Friday against the Sacramento Kings. I think both of my Texas teams, the ones on the court as well as my team inside the office, will continue to score this season. Are you positioned to perform?

And for basketball fans that prefer the college ranks, good luck with your brackets!

This week I am excited to be in Hong Kong, speaking to hundreds of curious investors at this year’s Mines and Money conference.

Please consider carefully a fund’s investment objectives, risks, charges and expenses.   For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637).   Read it carefully before investing.  Distributed by U.S. Global Brokerage, Inc.

Past performance does not guarantee future results.

Holdings in the Holmes Macro Trends Fund as a percentage of net assets as of 12/31/13: Apple, Inc. 2.27%, Facebook, Inc. 0.88%, OpenTable, Inc. 1.42%, Pandora Media, Inc. 0.71% , Tesla Motors, Inc. 0.00%.

The Holmes Macro Trends Fund purchased Tesla Motors in January 2014 and as of the date of this commentary, continues to hold a position in Tesla Motors.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The S&P 1500 Composite is a broad-based capitalization-weighted index of 1500 U.S. companies and is comprised of the S&P 400, S&P 500, and the S&P 600.