After a busy first quarter, we had a much quieter second quarter. We made three major changes to the portfolio as we continue to follow our themes of domestic economic growth, a strengthening dollar, and prolonged low energy prices. We have otherwise been sensitive to the tax implications of higher portfolio turnover.

We trimmed our position in WhiteWave Foods (tkr: WWAV), which had appreciated to over 4% of the portfolio. We think the stock’s rapid appreciation stretched its valuation, and to stay appropriately diversified, we took a profit from last year’s investment while keeping a 2.5% exposure. We believe consumer trends still favor the company; its recent results have been strong, and it continues to have category-leading sales in nut milks, organic dairy milk, and organic greens and produce. On the potential downside, Whole Foods now compels WhiteWave to sell greens in its stores as lower-margin white label products, and the company faces some risk vying for shelf space for its plant-based yogurt and planning how to position its products in China. However, we still see substantial upside in its expanding margins and growth opportunities.

Against the backdrop of low oil prices, we sold our position in Royal Dutch Shell (tkr: RDS/B), exchanging it for ExxonMobil (tkr: XOM). In April, Shell agreed to buy BG Group, a British integrated natural gas company. We think that Shell overpaid, and that its disadvantaged refining assets and adverse currency exposure will also weigh on the stock over the next several years. Furthermore, the BG transaction will reduce Shell’s ability to return capital to shareholders, one of the primary drivers of its outperformance in the first half of 2014.

Exxon is the largest nongovernment oil and gas company in the world. Its capital allocation and operating efficiency are superior to those of its peers, helping protect the company’s cash flows from the oil downturn. While we doubt Exxon will grow substantially without an acquisition, it has historically returned sizeable amounts of cash to shareholders and its dividend is the best protected of the major oil firms. It also reduces our currency exposure, which is beneficial as the dollar strengthens.

Trading Shell for Exxon replaces one oil “supermajor” with another, and does little to change our energy sector strategy. We expect oil prices to remain consistently low for the next few years, and have kept a small market overweight in integrated oil to partly hedge against extreme oil price swings. We also maintain a substantial overweight in oilfield services with our position in Schlumberger (tkr: SLB). The company has been quick to cut its own expenses, and part of its value proposition to oil producers is lowering their costs over time. This is of particular worth in this environment, and should help limit the stock’s downside. We believe Schlumberger will rebound sharply if drilling picks up.

Finally, we added to our position in the iShares Core S&P Small-Cap exchange-traded fund (tkr: IJR), bringing it to 5% of the portfolio. The fund is comprised of companies with market values under $2 billion, which derive the vast majority of their revenues from the United States. With solid US growth, quantitative easing occurring abroad, and economic uncertainty in Europe and Asia, we expect companies with domestic, dollar-denominated revenues to, in general, report more favorable results. Investing in the fund rather than individual stocks diversifies the risks inherent in actively managing multiple small-cap names.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Roberts Investment Advisors, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.