In our healthcare sector, we bought Zoetis (tkr: ZTS). Zoetis is the world’s largest standalone producer of medicine and vaccines for animals. Zoetis was originally the animal health division of Pfizer (tkr: PFE), but it was spun out as its own company in 2013. Zoetis produces pharmaceuticals for both livestock and companion animals, but we are particularly excited about the growth opportunities for the latter. As more people decide to keep household pets, and more pet owners are willing to spend money to keep their pets healthy, Zoetis will benefit. Remarkably, spending on pets has increased even during recession years, so if we do hit a recession in the next few years, Zoetis should be relatively insulated. We kept our overall exposure to healthcare about the same, as we also decided to trim our large position in UnitedHealth Group (tkr: UNH). We still maintain an overweight position in UnitedHealth, but we took advantage of an increase in price and valuation to reduce our exposure slightly.

In our finance sector, we sold Invesco (tkr: IVZ). We had held the stock based on the thesis that management could drive margin expansion to levels more in line with its peer group. However, the margin expansion story was taking much longer than expected to materialize, and in the meantime, organic growth remained challenged, while fee compression in the exchange-traded fund (ETF) space battered the stock. We decided to realize a loss for most of our clients in order to offset capital gains taken throughout the year. We purchased a small position in Charles Schwab (tkr: SCHW). The recent downturn brought Schwab’s valuation down to levels not seen since 2011. Although asset management fees are down, net interest revenue and trading revenue have been strong as the company continues to attract assets. We took this as an opportunity to gain a position in this premier asset gatherer.

In our consumer discretionary sector, we sold the Invesco S&P 500 Equal Weight Consumer Discretionary ETF (tkr: RCD) and added to our position in TJX Companies (tkr: TJX). RCD, as an equal-weighted sector ETF, had allowed us to gain sector exposure without adding meaningfully to Amazon (tkr: AMZN), which is already represented heavily in our client portfolios. However, we sold the position in RCD because we believe there is better upside opportunity in TJX Companies, the parent company of TJ Maxx, HomeGoods, Marshalls, and other off-price clothing and home stores. TJX continues to demonstrate that it is “Amazon-proof,” driving increasing same-store sales growth consistently even as other retailers feel the sting of competition by Amazon.

In the new communication services sector, we added to our position in Disney (tkr: DIS). Disney’s stock price has traded sideways over the past few years due to ESPN subscriber declines amidst a transition toward over-the-top (OTT) content consumption. However, subscriber declines have slowed recently, and are likely close to hitting an equilibrium level. Furthermore, Disney acquired valuable content assets from Fox (tkr: FOXA) and outlined its own OTT streaming strategy, including ESPN+, a majority stake in Hulu, and Disney+. This visibility, and the fact that we believe the ESPN subscriber declines are subsiding, led us to add to our position in Disney, taking advantage of a very low stock valuation.

Finally, there were two corporate actions to note. TJX Companies split 2-for-1 during the quarter. Praxair (tkr: PX) was renamed to Linde (tkr: LIN) following the merger of the two industrial gas companies.

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.