Portfolio Allocation

For those interested in some of the details of my portfolio allocation, here we go…

None of the charts or details that follow involve illiquid assets, such as private stock or real estate. The majority of my investments are in Brazilian assets. Because I spend money in Brazil, I want to avoid the risk of currency values fluctuating.

No actual values of the positions are shared, but the percent allocation is detailed.

This is not advisement advice. Do not follow what I have done. Consult a professional.

Overview:

87.3% of liquid assets are in Brazil, with 12.4% in the US. I have broken them down into categories, such as

• Income producing bonds. For example, the Tesouro Directo IPCA+ com Juros Semestrais, which keeps the principal amount inflation adjusted but pays interest two times a year.
• Stocks. This are individual stocks, not mutual funds.
• Growth bonds. These have a locked in interest rate and set period.
• Liquid Bonds and Cash: This would include cash, as well as Bonds that are intended to be liquidated anytime, such as a daily liquidity CDB and Tesouro Selic bonds.

A note on mutual funds, REITs (FIIs). US tax residents are subject to reporting and taxation on worldwide income. The IRS recognizes an entity called a Passive Foreign Investment Company. It was created to close some tax “loopholes” but has other consequences. The taxation is really bad on such entities, so it does not behoove a US tax resident to own any such entities. Unfortunately foreign mutual funds, ETFs, REITs (called FIIs in Brazil) all fall into this category. As such I own individual bonds and stocks.

Details of individual assets:

The Brazil assets come to about 21% stocks, 77% bonds, and 2% cash.

Brazil pays very high real interest rates historically, so my allocations favor bonds, especially government bonds. Private bonds (CDBs) are also a safe bet because they’re government insured via a program they call FGC (like FDIC insurance in the US). Just to give any non-Brazilian readers an idea of bond returns, currently a Tesouro Selic, which is the equivalent of US Gov short term bonds, pay 10.75% and inflation is 4.5%.

Stocks

The stocks have been very interesting. Brazilian companies pay very high dividends as compared to the US. The returns have been mostly good, but I like the dividends because it feels like I’m taking money off the table. It also provides an opportunity to reallocate to other assets using the dividends, and i like having that option. Also, the price to earning ratios are very low and price to book also very low. It’s a value investors dream (or trap!). I was buying Petrobras at a PE of about 2, for an extreme example.

Here is a breakdown of the stock performance. Note, I have provided the year I acquired the stock, but not the specific dates. Also some positions have been added to over time. Obviously the newer positions will not have as high a return as the older positions. The dividends used are all dividends I have collected over the ownership period, as well as a few dividends which have bee announced but not yet distributed.

Ticker	Purchased in these years	Dividend Return verses cost basis	Price return verses cost basis	Total Return	Percentage of portfolio
CMIG4	2023, 2024	4.68%	2.67%	7.34%	14.47%
CPFE3	2022	22.45%	26.04%	48.49%	12.29%
CPLE6	2022	8.37%	45.94%	54.32%	4.17%
ITUB4	2022	16.09%	56.37%	72.47%	15.16%
PETR4	2022, 2022	63.65%	13.97%	77.62%	15.30%
PRIO3	2024	0.00%	-0.49%	-0.49%	6.73%
TAEE11	2022, 2023	20.43%	7.51%	27.94%	14.94%
TRPL4	2023	7.44%	0.32%	7.76%	9.02%
VALE3	2022	19.83%	-22.44%	-2.61%	7.93%

Here’s a breakdown of the stock allocation by sector:

Obviously I’m a big fan of utility stocks. They generate good profits, distribute those as dividends, and they all have a monopoly in their geography. I figure, people are very likely to pay their electric bills, and demand is relatively inflexible, so it seemed like a low risk business.

Oil and gas breaks down as Petrobras and Pertorio. Petrobras is the state owned oil company. My line of thinking with that investment was, I doubt they’ll go out of business and it was a cheap stock. Petrorio was recommended to me. It looked cheap for the level of growth they had. It’s a new addition so we’ll see how that plays out.

Vale represents the mining portion. My thinking here was they’re big, state owned, unlikely to go out of business. It has been the least profitable investment I have made, but I’m not the type that gets in and out, so I’ll keep it and collect dividends.

Itau is the sole banking stock. It was recommended to me. It has done very well.

Please let me know your thoughts and feedback about my portfolio in the comments below. I plan to reallocate some of the liquid bonds.. any ideas of what I should invest in?

-Sirsandals