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This review will cover the first three months of 2022 as I had several life updates during the first few months of the year and was not able to provide monthly updates as planned. Moving forward the updates will revert back to being monthly reviews. For more information on the portfolio thesis and rationale, please see the original article here. As a reminder, it is important to remember that this portfolio is intended for long term performance.
Performance
The total return, including dividends, for the Engineer’s Portfolio during the 3 months of 2022 was -8.39% versus the total return of -5.20% for the S&P500. There is a noticeable underperformance for the Engineer’s Portfolio, however there are several positive takeaways. With several positions now trading at more attractive valuations, versus the elevated starting valuations as noted in the original article, I am now even more confident in the long term return potential for this portfolio.
As we can see in the table below, there were some heavy losses in several positions that entered into correction territory during the first quarter of 2022. I am disappointed to see Autodesk (ADSK) and several other large positions take a beating over the last several months, however I believe there is now even stronger potential for strong outperformance in the future.
| Ticker | 3 Month Total Returns | Weighted Return in Portfolio |
| (ADI) | -5.24% | -0.63% |
| (CARR) | -13.70% | -1.51% |
| (ADSK) | -23.65% | -2.36% |
| (AMT) | -14.07% | -1.41% |
| (RRX) | -12.70% | -1.14% |
| (ANET) | -3.55% | -0.32% |
| (TTEK) | -2.83% | -0.23% |
| (PWR) | 14.69% | 1.18% |
| (TEL) | -18.86% | -1.32% |
| (DTE) | 11.17% | 0.78% |
| (LFUS) | -20.67% | -1.24% |
| (CC) | -6.27% | -0.19% |
Source: Image created by author with data from Seeking Alpha and Fidelity Investments Inc.
Next, I’d like to look at a detailed breakdown of the performance for each of the holdings versus the benchmark of the S&P500. Summarized below we can see the performance of each position since the inception of the portfolio and the relative performance of each versus the benchmark. Overall, the Engineer’s Portfolio has a total return performance of -4.81% since inception versus -2.88% for the S&P500.
| Ticker | Total Return Since Inception (Dec. 2021) | Versus S&P500 |
| ADI | -7.55% | -8.03% |
| CARR | -14.32% | -14.80% |
| ADSK | -17.69% | -18.17% |
| AMT | -4.32% | -4.80% |
| RRX | -4.47% | -4.95% |
| ANET | 10.37% | 9.89% |
| TTEK | -12.32% | -12.80% |
| PWR | 13.07% | 12.59% |
| TEL | -17.13% | -17.61% |
| DTE | 21.23% | 20.75% |
| LFUS | -18.01% | -18.49% |
| CC | 2.56% | 2.08% |
Source: Image created by author with data from Seeking Alpha and Fidelity Investments Inc.
Updated Portfolio Composition
As mentioned in my original article, I will not be performing any rebalancing or adding to any positions for the foreseeable future. As this is the case, let’s look at how the portfolio composition has changed after four months.
| Ticker | Original Portfolio Weight | Current Weighting |
| ADI | 12% | 11.65% |
| CARR | 11% | 9.90% |
| ADSK | 10% | 8.65% |
| AMT | 10% | 10.05% |
| RRX | 9% | 9.03% |
| ANET | 9% | 10.43% |
| TTEK | 8% | 7.37% |
| PWR | 8% | 9.50% |
| TEL | 7% | 6.09% |
| DTE | 7% | 8.91% |
| LFUS | 6% | 5.17% |
| CC | 3% | 3.23% |
Source: Image created by author with data from Seeking Alpha and Fidelity Investments Inc.
We continue to see some slight shifting in weights of individual positions within the portfolio. Currently, there don’t seem to be any positions that warrant any concern for me as I continue with the long term buy-and-hold strategy and will not look to make any changes.
Developments and Announcements
Contrary to the performance metrics, I am actually excited about where the portfolio stands today. The investment thesis in all of my positions still stand strong, if not stronger, than when I initiated the portfolio. Supported by impressive earnings reports and positive developments throughout the first quarter, I view the current stance of the Engineer’s Portfolio to be a solid foundation to initiate long term outperformance. To rationalize my excitement, here are a few updates on several positions that are worth noting.
Analog Devices Inc (ADI) is currently my highest conviction play based on current valuations. Over the course of 2022, we have seen ADI decline in share price despite exhibiting several positive developments. To begin, the board of directors announced yet another annual double digit increase in the quarterly dividend distribution, raising the full-year distribution to $3.04 per share. This represents a 10.1% increase and affirms management’s stated long term goals to provide double digit dividend growth. ADI delivered a strong Q1 earnings report, easily beating consensus estimates on both EPS and revenue. However, the most exciting news is the recent announcement of raised guidance for future growth. The company has recently announced that they are raising their long term annual growth targets and are witnessing faster-than-expected synergies from the Maxim Integrated merger. Projecting 7-10% long term revenue growth, greater combination synergies than expected, a roughly 2% yield increasing 10%+ annually, and a long term track record of outperforming the market, ADI is positioned extremely well to deliver solid compounding returns for years to come.
Arista Networks (ANET) continues to flex its strength as the edge data center market continues to explode. As anticipated, ANET delivered a substantial beat on consensus estimates for the most recent quarter. Not only that, but issued next quarter guidance with even the low range projecting to be above consensus estimates. The market is starting to take notice as Citibank recently issued a report noting Arista’s stealing of Cisco’s market share as well as Wells Fargo citing the increased competitive strength of ANET and its disruption towards the legacy players.
Quanta Services (PWR) has continued to deliver and build momentum. Most recent earnings showed a resounding beat on consensus estimates as engineering services and effects from the infrastructure bill start to materialize. FY2022 guidance provided low end estimates above current consensus from analysts as the bright future of Quanta seems to get better and better. Operating as a near monopoly in its space and a long runway of growth ahead, I expect to see above market performance for the future.
DTE Energy (DTE) is shaping up and transforming into the company I was hoping it would be. As outlined in my initial article, I believe DTE is in an incredible position to provide shareholders with healthy returns. Situated squarely in the heart of the Motor City and recently consolidated into an electricity provider pure-play, the growth opportunities are plentiful. The recent proposal to build out a large energy storage plant in Michigan will have the potential to improve operating margins in the long term as interruptions and unexpected downtime at the plant can be supplemented by the delivery of stored energy to customers. Secondly, the recent partnership with Lyft creates an interesting opportunity. Currently, utilities are somewhat limited in the revenue they can make due to being a utility and having the requirement of rate approvals for what they are able to charge customers. This creates the situation of relying on reduction of costs as the sole means of improving profitability. That might all be changing with the Lyft partnership, although greater details of the partnership are not available, I believe DTE now has the potential to be obtaining new sources of revenue such as profit sharing from rides. My belief is that this will open the door to fundamental change in electric utilities, creating new avenues for revenue generation and improved margins. To add further positive sentiment, Bank of America recently issued a double upgrade to DTE as the runway to growth becomes more clear.
Conclusion
Although the current underperformance is disappointing, my conviction towards my positions has never been higher. Numerous positive developments across multiple positions while the market has experienced a small sell-off allows me to be confident that strength of the portfolio is being underestimated by the market and will be set up well moving forward. I look forward to continuing with monthly updates starting next month as I now have greater flexibility.
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