Performance review November 2014

Performance November:

In November, the portfolio gained 1,2% against 5,4% for the benchmark ((Eurostoxx50 (25%), Eurostoxx small 200 (25%), DAX (30%),MDAX (20%)). This is a quite significant underperformance of -4,2%. YTD, the performance is up 5,4% against 4,1% for the BM.

Positive contributors were Koc (10,2%), Hornbach (+9,0%), NN Group (+7,2%) and Cranswick. However, quite a lot of positions had actually negative performance like Admiral (-7,1%), Trilogiq (-6,7%), Ashmore (-3,4%), Thermador (-2,4%), Gronlandsbanken (-1,8%) etc.

On risk management:

With TGS Nopec and Romgaz, I do have two direct oil/commodity positions in my portfolio. However there are also some “indirect” exposures. Gronlandsbanken (my investment case assumes development of natural resources in Greenland) is such an “indirect” exposure as well as Bouvet (biggest client Statoil) and Sberbank. Overall, around 12,5% of the portfolio are oil/commodity “exposed”. There is a kind of off-set from Koc and the TRY Zerobond, as Turkey, a major net oil importer gains from lower oil prices. But overall I will need to make sure that I don’t expose the portfolio too much to commodity price fluctuations unless I would be bullish on that sector.

As I have mentioned in the past, the portfolio will not look good in months with strong benchmark performance. During the 47 months since I run the portfolio, there were 9 months with a performance of 5% or more for the benchmark. This is how the portfolio did perform in those 9 months:

Start Bench Portfolio Perf BM Perf Portf. Delta
Jul 11 6486,69 99,03 14,9% 3,9% -11,0%
Okt 11 5667,92 95,46 10,0% 2,9% -7,0%
Jan 12 5972,48 99,27 8,4% 3,5% -4,9%
Feb 12 6275,00 105,9 5,1% 6,7% 1,6%
Jul 13 7844,96 160,0 5,0% 3,1% -1,9%
Sep 13 8193,80 166,9 5,6% 4,9% -0,7%
Okt 13 8676,38 172,0 5,9% 3,1% -2,8%
Feb 14 9.306,80 186,3 5,2% 2,7% -2,5%
Nov 14 9.389,96 184,5 5,4% 1,2% -4,2%

We can easily see that the portfolio did only beat once, eight times the performance was worse, in some months much worse than the benchmark. The interesting thing is that over the total 47 months, the portfolio has still a lead of +37,7%. I think there are several factors at play here, among other a lower beta, time lags and individual issues. Nevertheless, this gives me confidence that my strategy will work over time although it involves some pain in the short time, mostly in months with big up moves.

Running a portfolio with a lot of individual, uncorrelated risk clearly cannot outperform in any kind of market, especially at the moment when “Beta” is king.

Portfolio transactions:

The only transaction was the 2,5% initial position in Romgaz. The current portfolio can be seen as always on the portfolio page.

Outright cash is now at 10,8% plus ~7,5% of positions which I would consider “cash like” (Depfa LT2, MAN).

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