Our results this quarter were poor, but if you’ve tuned in to any financial news in the past month or two, you already know about the market’s declines during the quarter. Negative stock market returns these past three months more than erased the gains we’d seen since the launch of the Motley Fool 100 ETF in January 2018. Performance since inception still looks good relative to the S&P 500 Index, but that sentiment provides little comfort during times of market turbulence.
Rather, I encourage you to look out to the horizon. While we publish these quarterly results to let you know what’s happening within the portfolio, we hope you join us in taking a longer-term approach. A drop like this may seem scary in the moment, until you realize how common these drops are — and how effective the stock market has been as a long-term creator of wealth despite such declines.
As you’d expect from the fund’s performance, there were far fewer winners than losers this quarter. The best performers were Red Hat (+29%), Tesla (+26%), and Starbucks (+14%). On the other hand, we had 17 investments that declined by at least 25% in Q4. Worst among the losers were NVIDIA (-52%), Align Technology (-46%), and Activision Blizzard (-44%). Given our market cap weighting methodology, none of these declines hurt as much as the performance from Apple (-30%), Amazon.com (-25%), or Alphabet (-13%). Those declines allowed Microsoft, which suffered a 10% dip of its own, to become the largest position within the Index. There will be quarters like this in the future, but we believe owning these companies for the long run is still one of the best strategies.
During this quarter’s rebalance, the fund underwent a few large changes. We said goodbye, for now, to Bank of America, Intel, and Oracle. Combined, these three holdings had been nearly 6.5% of assets. In their place, we’ve added The Boeing Company, Union Pacific, and Charles Schwab. Airline manufacturer Boeing and financial-services provider Charles Schwab both hit a bit of stock-price turbulence in 2018, but the Fool’s analysts like them. Union Pacific operates one of the largest railway networks in the United States. Its 32,000 route miles of tracks gives it the kind of long-term advantage we like to see, and it gives us a little stability in this technology- and consumer-heavy portfolio.
The rebalance included several other changes near the bottom of the portfolio. The Fool 100 Index consists of the 100 largest Fool-recommended companies, and the smallest companies in the list often change during each rebalance because of nothing more than price fluctuations. The list of all the companies we removed and added from the fund this quarter may appear long, especially since we rebalance quarterly. But remember, these are among the smallest holdings in the fund, and the number of companies changing doesn’t have as much of an impact as what happens to the largest holdings — after all, the top 10 largest holdings account for more than 50% of the fund’s assets.
With that disclaimer out of the way, let’s look at these changes. In addition to the businesses already mentioned, we sold Broadridge Financial Solutions, Match Group, Red Hat, ServiceNow, Skyworks Solutions, SVB Financial Group, Textron, and Verisk Analytics during the quarter. The companies we added were Alexandria Real Estate Equities, Applied Materials, CoStar Group, Expedia Group, Nasdaq, Sirius XM Holdings, Take-Two Interactive Software, and Veeva Systems.
You can see the full list of holdings in the ETF, updated daily, at http://holdings.filepoint.com/api/MotleyFool/TMFC/pdf .
Note: Opinions expressed are subject to change at any time, are not guaranteed and should not be considered investment advice.
*The Motley Fool 100 index is a market-cap weighted index that measures the performance of The Motley Fool’s 100 largest active buy recommendations or highest-rated stocks in Fool IQ, the company’s analyst opinion database. Every company included in the Index is incorporated and listed in the U.S. The S&P 500 Index is a stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. You cannot invest directly in an index.