Coca-Cola: Final Performance – The Coca-Cola Company (NYSE:KO)


Old ads of Coca-Cola, through Envisioning The American Dream.

A wallet covered around a Coca-Cola position

Last August, I wrote about the performance of a bulletproof portfolio, or cover, built around a position in AT & T (T) in 2017 and presented a new one, which was completed in February (each portfolio lasts for six months ). After that, I started presenting covered portfolios built around other putative conservative actions, including Coca-Cola (KO), in November. Let's see how the portfolio ended after six months. First, a reminder of how the portfolio was built and what it consisted of.

Building the October KO Covered Portfolio

We use the covered portfolio method to create a concentrated portfolio around Coca-Cola in October based on these premises:

  • You had $ 200,000 to invest.
  • He was not willing to risk a reduction of more than 14% in the next six months, so he wanted to be covered against any decline greater than that.
  • I wanted to invest in a handful of names, including Coca-Cola, in order to maximize the expected total return net of coverage costs.

Here is a summary of the steps involved, if you want to do it manually.

Step 1: Estimation of potential yields

The objective of this step was to find names that have the potential to generate high total returns to include with Coca-Cola. Our site, Portfolio Armor, calculates its own potential returns by badyzing the adjusted price history (which takes into account the dividends) and the market sentiment of options, but could have derived theirs from Wall's price targets. Street or the price targets given by the Alpha Alpha taxpayers that followed. . Its initial universe could have been as large as Portfolio Armor's (the ~ 4,500 shares and exchange products with options traded in the US), or something smaller, like the Dow 30.

Step 2: Calculate the costs of coverage

As you were going to cover, the potential gross returns would have been less important to you than the net potential returns of the coverage costs. To solve them, I would have needed to find the optimal or least expensive way to cover each name. We write about how to find optimal hedges here. For this example, I would have been looking for the cost of coverage against falls of 14% or more. The smaller the decrease he sought to protect himself, the narrower the list of names he could have used.

Step 3: Clbadification of names by net potential performance

For each of the names in your initial universe that had a positive potential return, you would have subtracted the cost of coverage you calculated in Step 2 to obtain a net potential return.

Step 4: Purchase and coverage

In this case, I would have simply bought and covered a handful of names that had the highest possible returns net of coverage costs. The automated approach shown below included a fine-tuning step to minimize cash and another to determine if it should be covered with options or collars, but those four steps were the basic elements.

The November Coca-Cola Coverage Portfolio

Using the process described above, this is what the Portfolio Armor automated portfolio construction tool presented to us:

Image through the portfolio armor.

In addition to Coca-Cola, the site included Lululemon (LULU), McCormick (MKC) and Omnicell (OMCL) as primary values, based on their net potential returns when covered against> 14% of falls. The site attempted to allocate roughly equal dollar amounts to each of those names, but rounded up the dollar amounts to make sure it had round lots of each share.

In its fine-tuning step, it selected Lumentum Holdings (LITE) to absorb the cash left over from the process of rounding the primary values. Lumentum is covered with an optimal necklace, or less expensive, with a cap set on the current seven-day (annual) yield of the money market fund of Fidelity Government Cash Reserves (FDRXX). The cost of covering this is negative: the idea here is to obtain an opportunity to obtain a higher return than cash, while reducing the overall coverage cost of the portfolio and limiting your risk downwards according to your tolerance to the risk.

Performance of underlying securities from

This is how the underlying securities in the hedged portfolio have been performing since then, without hedging. Coca-Cola was the best performer.


YCharts data

Coca-Cola was the name with the worst performance here, with a lower performance than the names selected by Portfolio Armor. Assuming that, for reasons of simplicity, your portfolio was weighted equally, and you held each position from November 1 to May 1, it would have risen 13.2%.

Performance of the portfolio covered from

This is how the covered portfolio was made.

Table through the portfolio armor.

The hedged portfolio ended 6.64%, net of coverage and trading costs, while the SPDR S & P 500 ETF (SPY) rose 7.8% in the same period.

Competitive returns with less risk

During the December market nadir, this portfolio fell by 6.74%, while SPY fell by 13.81%, as can be seen in the table below.

Table through the portfolio armor.

And, as I pointed out earlier, the portfolio ended with a return at the SPY stadium: 6.64% versus 7.8%. That is a competitive performance, and the smaller reduction in December exemplified the lower risk of the portfolio.

Better without the soda

When I presented this portfolio in my November article, I mentioned that one way in which it differed from the portfolios that I present in my Market service is that in those portfolios, I let Portfolio Armor choose all the names, instead of giving one to begin with. I did it in this case, with KO. How would you carry out this type of portfolio without KO? At that time, I presented a similar portfolio to my Market subscribers on the same date, a $ 100,000 portfolio hedged against a> 14% decrease in which Portfolio Armor chose all names. In place of KO, the site chose Church & Dwight (CHD):

That portfolio without sodas slightly surpbaded SPY:


It is a fortunate coincidence that I created the Coca-Cola portfolio at the same time that I created a similar one without Coca-Cola, because it illustrates very well the impact of the security selection. In a concentrated portfolio, a difference in a position can affect overall performance. However, in both portfolios, the risk was strictly limited due to the coverage.

To be transparent and responsible, I publish a performance update for my Bulletproof Investing service every week. Here is the last one: Performance update – Week 75.

Revelation: I / we do not have positions in any of the actions mentioned, and we have no plans to start any position within the next 72 hours. I wrote this article myself, and expressed my own opinions. I am not receiving compensation for it (except for part of Seeking Alpha). I have no business relationship with any company whose actions are mentioned in this article.

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