value and opportunity

Performance Q1 2016

For the first quarter 2016, the portfolio lost -2,0% compared to -6,2% for the Benchmark (Eurostoxx50 (Perf.Ind) (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%)), an outperformance of +4,2%. Since inception (1.1.2011) the score is now +105,4% vs. +52,1%.

Q1 was kind of volatile, at the worst point the portfolio was down around -10% YTD. This is how it looked on a monthly basis:

	BM	Portf.	Dif.
Jan 16	-7,5%	-4,5%	3,0%
Feb 16	-2,3%	-0,3%	2,0%
Mrz 16	3,8%	2,9%	-0,9%
Q1	-6,2%	-2,0%	4,2%

Nevertheless I would tell anyone complaining about the volatility: Get used to it.The volatility was also quite low compared for instance to the monthly returns during the EUR crisis in early 2011. Just for comparison, look at those monthly returns:

	Perf BM	Perf Portf.	Delta
Jun 11	-15,0%	-5,8%	9,2%
Jul 11	14,9%	3,9%	-11,0%
Aug 11	-15,1%	-7,4%	7,8%
Sep 11	-6,4%	1,1%	7,5%
Okt 11	10,0%	2,9%	-7,0%

So compared to that, Q1 2016 was clearly “nothing”.

The best performers QTD were (in original currency) Koc (+29,1%), Admiral (+18,5%), Bouvet (+16,0%), Aggreko (+14,9%) and  Ashmore (+11,9%) and . The worst ones Pfandbriefbank (-24,4%), Draeger (-22,0%), Citizen Financial (-21,3%) and NN Group (-12,4%).

Financials got especially hit hard in Q1, I guess that had to do with the Fed not raising rates further, which would have been good for financials. Plus, quite surprisingly everything EM related made a big comeback in Q1. The volatility for EM related stocks was enormous- Ashmore for instance started at around 260 pence, went down to 196 pence and then rallied back to almost 300 at the end of March. Volatility like this is clearly part of the “price to pay” when going into anything EM related.

Despite the volatility in single stocks, the portfolio itself is still less volatile than the market, especially in down months, the draw downs are significantly lower than the benchmark.

Portfolio transactions:

The first quarter looks almost like “High frequency trading” compared to my stated philosophy.

I sold:

• Greenlight Re in January
• MAN in February
• TRY Depfa bond in February
• Koc in March
• Gaztransport in March after buying in February

I didn’t buy any new stocks (with the exception of Gaztransport), but I increased Handelsbanken from 2,0% to 2,5% amd reinvested the dividend into the stock, I bought 0,5% more of Thermador at 80 EUR/stock and increased Electrica by 1%.

Why did I sell my Turkish positions ? The reason is simply that I got (very) uncomfortable with the country as such. One should clearly not mix politics and investing, but I think Turkey’s (and Erdogan’s) current path is not positive for long term growth and increases the risk for short term problems. The timing was maybe not optimal, but I do think there might be better contrarian investment opportunities.

The quick “in and out” of Gaztransport at least for now seems to have been a good decision. I bought it as a “contrarian” position and if the expected return than realizes within a very short time period, than I think it is better to realize the profit than to get greedy and hope for more. If I would have been long term bullish, then I might have acted differently.

The portfolio now has 24 positions, cash is at 15,5% which is a little but on the high side, especially with dividend season coming up right now.

Portfolio  re-categorization:

This quarter, I have “re-categorized” my investment portfolio to better reflect my general “investment themes”. I am not sure if this is really useful but at least for me it seems to be better than my old categories (“Core”, “Emerging markets” and “special situations”). Categorization always has two sides: On the one side, it can help to make things more structured, on the other hand, thinking in categories can sometimes kill creativity and “opportunity”. So I plan to use those categories mostly for record keeping / visualization.

“Boring value” is the biggest category. Those are either “cheap and good” companies or “Ok valued and very good companies”. Miko, Hornbach, G. Perrier or IGE & XAO are typical companies in that category. They are neither “Buffett/Munger” nor “Graham” stocks. but somewhere in between. Many of the companies are family owned/run, unspectacular but solid long term investments.

“Buffett/Munger”:  Self explaining, “moaty” companies, usually more expensive. As I am not really wired for those kind of investments, I actually own only one stock (TFF) which for me in the beginning was  a “boring stock”. I have outsourced that category partly to Mathias with his Partners fund.

“Different”: This is my personal favorite but also the most difficult one. Those are companies which are good companies but do something very differently than their competitors. This can then result in a kind of moat but often not in the classical form. In my opinion in the long term this often leads to superior results and therefore I am prepared to pay more for them compared for instance to the “Boring” ones. However it is relatively hard to find those kind of companies, so far I have only found 4 that I liked: Admiral, TGS, Handelsbanken and Thermador. My goal is to have full positions in each of them by year end.

“Contrarian”: Historically, I have been a “full contrarian” investor. This has changed but I still like contrarian investments to a certain extent. My current contrarian investments do have mostly Emerging markets exposure (Aggreko, Ashmore) or are in jursidictions where few people even think about investing into (Elecrica, Romgaz).

“Special situations”: This category remains the same, all kind of special situations, usually triggered by some kind of corporate action (Spin.-off, squeeze out, take over, capital structure arbitrage etc.).

I don’t have any fixed targets for those categories, however I would be careful with too much “contrarian exposure”. Also, I target for the first 3 categories (Boring, Buffett/Munger, Different) at least 50% of the portfolio. Sometimes the differentiation is also difficult. Lloyds Banking for instance is a special sitiuation investment, but now looks contrarian. TGS Nopec also looks now like a contrarian oil play although I still consider it as a truly “different” company compared to its competitors.