What If I Were a Portfolio Manager? #2 Stellar Capital Management
Reflecting on 2024: Reviewing the Year and Introducing a New Portfolio Addition
Hi, Investor 👋
I’m Jimmy, and I’m thrilled to welcome you to the second edition of our new series here on the newsletter! Through Stellar Capital Management—our fictional investment fund—I’ll continue to share skin-in-the-game investment ideas, designed to spark actionable strategies and challenge conventional thinking.
In this edition, we’ll take a moment to reflect on the performance and key results of 2024, while also introducing a new stock we added to our portfolio late in the year.
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Portfolio’s 2024 Performance:
As the year draws to a close, we reflect on 2024—a period marked by resilience, transitions, and opportunities across global markets. Investors faced a complex yet rewarding landscape shaped by macroeconomic shifts, monetary policy adjustments, and corporate performance.
Our equity portfolio delivered great performance this year, navigating a complex environment with a focus on simplicity and conviction. We balanced exposure to (i) secular growth themes, such as artificial intelligence, shifts in consumer behavior, and emerging markets, with investments in (ii) businesses we believe are significantly undervalued—"buying a dollar for 50 cents," as Benjamin Graham famously said.
Without employing leverage or engaging in options trading, our straightforward, buy-and-hold strategy resulted in a +42.7% return, compared to the S&P 500's +24.5% - an outperformance of 18.2 p.p..
Before we dive into the details of our portfolio—which, by the way, includes an intriguing new position (read until the end to find out)—let’s take a moment to reflect on the macroeconomic backdrop that shaped 2024…
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Macroeconomic Resilience and Interest Rates:
2024 showcased the remarkable ability of the U.S. economy to sustain growth in a high-interest-rate environment. The Federal Reserve initiated a long-anticipated pivot, with modest rate cuts aimed at balancing growth with inflation control. Headline inflation continued its descent toward the Fed’s 2% target, driven by easing supply chain pressures and tempered energy prices.
Adding a layer of complexity to the macroeconomic environment, the U.S. presidential election concluded with Donald Trump securing a second term. The market initially reacted with volatility as investors assessed the potential implications of campaign promises on trade, regulation, and fiscal policies.
Treasury yields remained elevated, with 10-year bonds oscillating around 4.2% by year-end, underscoring the attractiveness of fixed-income investments. This environment offered investors compelling opportunities to lock in high yields, particularly in U.S. investment-grade bonds.
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Fixed Income: A Year of Opportunity:
For fixed-income investors, 2024 proved to be a banner year. Elevated yields and a relatively stable credit environment made U.S. Treasury securities and corporate bonds attractive anchors in global portfolios.
High-yield debt in emerging markets presented selective opportunities, offering a risk-reward dynamic that appealed to yield-hungry investors willing to navigate localized volatility.
Despite intermittent spikes in rates triggered by macroeconomic data or political events, the overarching trend was stability. For those focused on preserving capital while capturing income, fixed-income markets were a standout in 2024.
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Equities: Strong Earnings, Rising Markets:
The equity markets defied skepticism, delivering robust returns across key indices.
S&P 500 surged to record highs, closing the year with double-digit gains, driven by resilient corporate earnings and a supportive macroeconomic backdrop.
Nasdaq continued its impressive rebound, propelled by technological innovation and investor enthusiasm for AI-driven growth.
Dow Jones, historically more value-oriented, demonstrated strength, highlighting broad-based market optimism.
American companies exceeded expectations in 2024, with sectors like technology and consumer discretionary leading the charge. Strong balance sheets, strategic cost management, and renewed consumer confidence buoyed earnings, while the economy’s resilience underpinned positive sentiment.
Global equity markets also benefited from U.S. stability, though emerging markets faced headwinds from a strong dollar.
Now, let’s talk about our equity portfolio (and our new investment)...
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Portfolio Overview:
As you already know, our portfolio is intentionally concentrated - reflecting our belief that generating alpha in a highly competitive market stems from focusing on a select group of high-conviction companies.
Throughout 2024, it consisted of three primary positions:
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