The title might sounds contradictory. How can a dismal Q2 results in a 13.07% return YTD?
Well, it could if your Q1 return is 18.5%. This essentially means that Q2 is a decline for my portfolio.
Before we dive into the specifics, here is an overview of the situation.
2024 Performance YTD
My Portfolio: 13.07%
Vanguard 500 Index: 15.21%
Performance since inception (Jan 2021)
My Portfolio: 35.4%
Vanguard 500 Index: 51.8%
(Based on an arbitrary starting amount of $10,000)
June has been an especially bad month in terms of the portfolio's performance against the index. The index returns 3.58% while my portfolio declines by 3.18%. This results in a 6% difference which causes my portfolio to lag behind the index. By the end of Q1, my portfolio is actually leading the index by 8% so it's kinda a bummer to see the portfolio actually ending H1 behind the index. This widens the gap between my portfolio and the index based on performance since January 2021.
The decline in Q2 performance also means that the current CAGR of my portfolio is now 7.87% since 2021. I would love to see it above 10% by the end of 2024.
The index continues to have a strong performance in 2024 despite a majority of the constituents not doing as well as expected. I was sharing in my Telegram group that just 5 stocks actually drive the majority of the 2024 rally UTD with NVIDIA alone accounting for 31% of the first half advance. If you were to look at the equal-weighted version of the S&P 500, the growth is just 4% YTD. This is a big difference from what the index returns.
For an overview of the YTD performance of the constituents in my portfolio, refer to the below table.
The 14% decline in Bitcoin prices in Q2 contributes mainly to the lesser than expected growth of my portfolio. The ARK ETFs also declined by more than 10% in Q2 which contributes a little to the dismal performance of the portfolio albeit not much as I have already drastically reduced their allocation over the years. The China constituents unsurprisingly continue to have lacklustre performance. I understand that there are still quite a number of value investors predicting/hoping/thinking that there will be some rebound in China equities. I'm personally not hopeful of it as the credit demand from firms in China continue to remain weak which prompt doubts about the near-term growth of China firms. Despite multiple efforts by the government to rally the market, we keep seeing the China equities declining after multiple rounds of rebounds.
The initial goal is for the portfolio to have a return of 40% in 2024. This is looking a little unlikely at the moment. However, I do think that there is a good chance of 20% return in 2024. I don't think Q3 will be a good quarter for my portfolio and suspect most of the rally will happen in Q4. One reason behind it is that Q3 is typically a poor quarter for Bitcoin and I don't think there are many catalysts to further propel the Bitcoin prices in Q3. Also, I suspect there might be some headwinds in Q3 with the U.S market maybe facing a short period of decline once the top few companies start showing declines in their stock prices due to earnings misses or weaker than expected outlook. With chances of rate cut reducing (though we are still expecting one rate cut by end of this year), the next 3 months or so should be challenging for risk on assets like equities and crypto. Just from the data alone, we can see that inflation has crept up to 2.39% from 0.54% 3 months ago. This is certainly not very good news for the market.
The presidential election in Q4 should have a positive impact on the market if Trump ends up winning it. This will be a space to look out for in the next few months.
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