Performance review February 2015 – Comment “Interest rate surrender”

Performance February

In February, the portfolio gained +5,7% against +7,2% for the Benchmark (Eurostoxx50 (25%), Eurostoxx small 200 (25%), DAX (30%),MDAX (20%)). Still worse than the benchmark but closer than in February. Year to date, the score is +9,2% against +16,1% for the benchmark.

For the first time since its inception (1.1.2011), the portfolio has now doubled in value with an overall gain of +100,6% against +67,3% for the benchmark.

Outperformers in Fabruary were Miko (+16,5%), Draeger (+14,7%), KAS Bank (+12,6%) and TFF (+12,4%). Losers were Koc (-10,2%), Installux (-5,2%) and the TRY Depfa Zero (-3,2%).

February showed the typical “catch up” of small caps which often outperform with a certain time lag to the liquid markets. Overall with around like 20-30% of cash & cash equivalents, I can clearly not expect to match the benchmark in such a phase. This is the strongest start into a calendar year for the stock market since I run the portfolio and my low beta approach then doesn’t work so well.

Portfolio transactions

February was a slow month. The two exceptions were that I sold out the remaining part of Cranswick and increased my Electrica position by 1%. Direct cash ist now at 12,8% plus a further 11% in cash like positions (HT1, Depfa LT2, MAN). I clearly see the problem of some shares reaching fair value and not generating a lot of great new investment ideas.

The number of holdings is now at a reasonable 25. Above 25 I don’t feel too comfortable, so if I would add a new position, I will most likely “kill” an old one. Most obvious candidates would be my smallest holdings, Koc and Trilogiq. The month end portfolio as alaways can be accessed via the “Current portfolio” page.

One remark here on my portfolio holdings: Currently, a lot of companies issue “preliminary annuals”. I always hesitate to fully read them because often they lack important information which is only disclosed in the annual report. I find it much more time effective to wait for that annual report and then decide what to do, unless something really dramatic happened.

Comment: “Changing interest”

Normally I tend to stay away from most macro related issues because it makes my head spin. This comment will be a small exception. First an interesting datapoint: What do you think was the best asset class in 2014 at least in “developed” markets ? Well, US stocks with 15,3% look strong but the German 30 year bund made around +34% in 2014. For many people this is surprising as how you can make +34% in a year with an instrument which had a yield of 2,8% at the end of 2013 but this is the “power” of duration and convexity.

But the even more interesting thing (at least for me) is that for the first time in my 20 year professional career in finance, most of the people I talk to have changed their expectations with regard to interest rates. Even back in the 90ties, everyone was convinced that interest rates could only go higher. The lower rates went, the louder the voices grew. Bond bubble, hyper inflation etc. etc. were the buzzwords and shorting the bund was the absolute “No brainer” trade.

Looking at the historical yield of the bund future (the proxy for 10 year Bund yield), we can clearly see that this “interest rates can only go up” attitude was to a large extent a combination of “Recency bias” and “Anchoring”:


It clearly shows that at least for the last 25 years there was no mean-reversion in interest rates.

I guess the events early this year, mainly the Swiss Franc de-pegging plus the Draghi announcement to buy 60 bn EUR monthly for the foreseeable future combined with negative yields all around have somehow silenced many of the pundits. With negative rates, being short duration now suddenly really starts to hurt. Keeping cash in a long tem pension portfolio until now did not really hurt, but now, if you really have to pay money for deposits, people do anything to get yield. It almost looks like that negative yields force many institution to “surrender” and go long duration, no matter how low yields are. It will be interesting to see for instance what “my friends” at FBD are doing after betting on rising interest rates for the last few years.

Historically, such large scale surrender situations have often marked a mid-term turning points. I would not bet on this nor am I sure that this observation is relevant. However it is definitely a change in expectations compared to the last 25 years. Which I find interesting.


  • The most interesting thing concerning interest rates in the last two years is the changing perception of yields and price.
    It used to be all about the yield you can get and the safety of said yield. Now bonds are viewed as stocks and people look to the price action – almost like junk bonds.

  • Is there an English link to that article? thx!

  • In one of my recent guest articles in I wrote an article upon negativ interest rates. The system is nothing new. It has been invented in early twentieth century by Silvio Gesell. It has been tried out in Eastern Bavaria and Austria in 1929 and 1932 to overcome deep economic crisises. It has functioned pretty well but in both cases the National Banks stopped the systems. In a recent book we argued that the EZB might follow Gesell´s ideas. When we puplished that theory in 2014 most people laughed about us. Now it is reality. Recently some economist proposed to abolish cash to be able to install even higher negativ interest rates. To be short: Negativ interest rates even could get more extreme. As long is there is no innovation that would drive growth significantly we´ll probably live in a low interest environment. But on the horizon we can see them: Self Driving Cars, drones, personalized medical care, exoskelletons, house hold robots and much more. We are just in an interim period between two Kondratieff cycles. It is a matter of time when economic activity will reach unseen levels. So we just should lean back, invest and wait.

  • Congrats for the 2×1!!! A remarkable milestone.
    The 10 yr bund…although I know you were skeptical about the idea it seems to be an irrovacable question of common sense (short it, short it!!!). Un abrazo,

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