Performance review June 2016 – Comment: “Brexit, Excuses and Risk Premiums”

Performance Q2 2016:

In the second quarter, the portfolio gained +0,6% against -3,5% for the Benchmark (25% EUR Stoxx 50, 25% EUR Stoxx small, 30% DAX, 20% MDAX). YTD the score is -1,4% for the portfolio against -9,5% for the Benchmark. On a rolling 1 year basis, its +1,0% for the portfolio and -8,4% for the bench.

Just for fun, here is the YTD/1 Year performance of some small funds that I follow and where I know the managers (I will track them in future reviews just to see how I am doing against the “Pros”, data from Bloomberg):

Partners Fund TGV: +1,71% / +7,20%
Profitlich/Schmidlin: -3,86% / -4,35%
Squad European Convictions -1,19% / +7,85%

As some might have noticed, I have included a new performance page in the blog which shows the full monthly record since inception including links to all performance reviews. This is how the table looks like:


The best stocks in Q2 were (in EUR, incl. dividend):
Installux (+35,1%  –> don’t ask, I honestly don’t know why…)
Aggreko (+14,2%)
Kinder Morgan (+12,1%)
Silver Chef (+9,4%)
Electrica (+6,2%)

The losers:
Lloyds (-21,3%)
Hornbach (-11,1%)
NN Group (-10,6%)
Van Lanschot (-10,3%)
Gagfah (-8,0%)

Interestingly, 3 out of 4 Uk investments (Admiral, Ashmore,Aggreko) did well despite the “Brexit”, only Lloyd’s suffered. The 2 Dutch financials are most likely “collateral damage”. Especially in June, the portfolio again behaved at I intended it to do despite the relatively significant exposure to UK.

Portfolio transactions Q2:

New positions were: Kinder Morgan in April, Silver Chef in May and a not yet disclosed French small cap in June (sorry for the cliff hanger, but I didn’t have time to “polish” my write up yet)..

I added to Lloyd’s (some pre-Brexit, some after), Pfandbriefbank and Handelsbanken. I didn’t sell anything, mostly because of the cash inflow from dividends. Looking back it would have been better to add Admiral or Aggreko…..

The current portfolio as always can be seen on the portfolio page. The cash quote at the time of writing is at around 8%.

With KMI and Silver Chef, the percentage of non-European assets now has increased to ~7%. A further 25,5% are non-EUR denominated European stocks. At some point in time I will need to think about if I include some non-Eur index into my benchmark.


Comment “Brexit, Excuses and risk premiums”:

It’s now 2 weeks after my “Armageddon alert” post at the time of writing. UK voters have decided for a “Brexit” but, as I described in the post, no one has an idea what that means and now even less so after both, Cameron and Johnson (Edit: and Farrage)  are out of the picture (for the time being).

Personally, I was surprised by the volatility on the day after, but interestingly (and not too surprisingly), most of the stock indices are actually up since when I wrote the post on June 17th (DAX+1,7%, the Footsie even +2,7% in EUR and almost 10% in GBP). Funnily enough, there were a lot of headlines like “Brexit destroys xxx bn market values” but very few which said “No problem, all losses recovered already”.

The hardest hit stocks are (as always) financials and real estate. Financials are obvious, especially considering that the 10 year GBP Swap rate effectively got halved since the beginning of the year (from 2,01% to 0,98%) and that makes it more difficult to earn spreads. Real estate is more of a surprise however, as drastically lower interest rates should lead to significantly lower cap rates and higher real estate values, as long as they are not empty. So maybe there is some opportunity to be found in real estate at some point in time.


However one thing is for sure: The Brexit will be a great excuse for any CEO who had any kind of issue in his company. So in the coming weeks and months we will hear many CEOs explaining their bad results with the Brexit, although in reality this had nothing to do with it. The usual Perma bears and fear mongerer in the press will use this to tell everyone how doomed Europe is whereas in the mean time stocks have recovered and life most likely will go on. In the UK, many struggling companies will have a great excuse to lay off workers, especially in the troubled financial sector. This FT comic greatly illustrates the point:


One of the first Continental examples for the “Blame the Brexit” game is Bayer, which already indicated that the Brexit will potentially endanger their Monsanto deal. This is quite interesting and quite obviously BS, as neither Monsanto not Bayer have a lot of business in the UK.

That brings me to my final point. Many people tell me that they don’t want to own stocks now because the situation is so bad. Negative interest rates, Brexit, Russia, China, ISIS etc., it is much too dangerous to own stocks now.

Clearly I do not have a crystal ball what will going to happen but the “equity risk premium” which a stock investment implicitly promises, does have the term “risk” in it for good reason.

You don’t earn a risk premium when there is no risk. Many investors (and even professionals) like to earn risk premiums but seem not able to stand the risk. A lot of underperformance is created when people try to be smart and try to “protect the downside” either by trying to time the market (“taking some money off the table”, “it never hurts to realize profits”) and/or use complicated products (“Alternative Assets” !!!) etc.

There are many studies which show that the return of the “average investor” is significantly lower than the average market return. In my opinion one of the major reasons clearly is that in situation like the current one, people get scared and pull money out when the market goes down quickly. Once everything recovers, they go back in and have missed out the increase in between. After big shocks like 2009 or 2002, many investors stay away for many years and only come back when the big money has already been made.

Yes, it hurts if you see your portfolio going down 5% in one day or even a stock like Lloyd’s losing -30% in one day, but the likelihood is very high that if you are out on the way down, you will most likely also miss on the way up.

Be also very cautious if someone (or a financial product) promises you to give you all the upside but no downside. The chances are high that either he is disguising a very expensive and inferior product (“Alternatives”) with a much lower expected return or it is an outright fraught.

To earn the risk premium you have to accept the risk. There are no short cuts.



  • When do you think you will disclose your new position ?

  • bei der Pfandbriefbank noch dabei?

  • Erste Logikfrage: Wenn ich es richtig erinnere, hast du dich (nachvollziehbar) entschieden, nur noch quartalsweise Performanceartikel zu posten, weil du dich langfristiger orientieren willst und die monatlichen “Zuckereien” nicht unbedingt schätzt. Ist es da sinnvoll, auch in 2016 weiterhin monatliche Performancewerte anzugeben? Ein (nur!) quartalsweiser Vergleich mit dem Vergleichsindex erscheint mir da logischer, gerne auch rückgerechnet bis 2011.
    Zweite Logikfrage: Wie weit hältst du den FTSE 100 mit seinen stark globalisierten Firmen (Stichwort Minenwerte) für aussagekräftig für die englische Wirtschaft? Der nachgeordnete FTSE 250 erscheint mir eher repräsentativ für die englische Wirtschaft, und der scheint stärker gelitten zu haben?
    Final Klugscheissermodus: Alex ist das feste Tagescomic im Telegraph, nicht in der FT. Auch wenn es besser zur FT passen würde.

    • Alex: Sorry, ich kannte den nur aus der Deutschen FT…..

      Zur ersten: Ich glaube das Entscheidende ist was man mit monatlichen Daten macht. Ich gebe es an, mache mir aber selber daraus nicht viel.
      Zur Zweiten: leider kenne ich die Sektoren aus dem FT250 nicht besonders gut.

    • Vielleicht noch als Nachtrag: ich habe es glaube ich ganz gut geschafft deutlich wneiger zu handeln. Ich schaue aber noch immer genauso oft auf die Kurse wie früher……

      • Das geht mir ähnlich. 😉

      • Irgendwie habe ich es nun schon seit mehr als 3 Monaten geschafft, nur noch Freitags die Kurse ‘meiner’ Aktien zu checken. Ist aber einfacher, wenn man nicht in der Industrie arbeitet und ständig damit konfrontiert wird 🙂

  • How is your performance if you denominated in USD? This year and since inception?

    • That’s an exercise you can easily do yourself….just multiply the return with the return of the USD vs. EUR. As an EUR based investor, I am interested in EUR perfomance only, so I am not really interested in doing this exercise.

  • The problem for me with generic benchmarks as DAX or S&P is that they do not adjust for dividends, i.e. they are not total return indexes. And so they are always easier to beat for asset management industry. Of course in a current richly priced environment div yield is just a passing thought for most, but in a value investors portfolio it usually forms quite an important part of total return. I quess your portfolio div yield should at least make some 2-3%. Romagaz alone is more than 10% now. So it’s not really comparing apples to apples then.

    • No you are wrong. The Benchmarks that I use (DAX, EuroStoxx, MDAX, SDAX) all assume reinvestment of dividends i.e. total return.

      • Yes, I re-checked again – you are right, sorry for my mistake. The thing is that STOXX indices are calculated either as total return or price indices with the latter neglecting dividend payments. EUR STOXX 50 is apparently a total return index but many iSTOXX indices, especially sectoral ones are purely price indices. DAX index is again kind of aberration among big market indices – the CAC40 (PXI), Dow or S&P all being only price indices. So, yes, a purely German fund has comparatively harder time to beat DAX than a French fund to beat CAC40!

        • For many of the big indices you have both a price and a perfomance index. Most “reputable” funds compare themselves against perfromance indices. Buffett for instance always compares himself against the S&P 500 Total Return index.

  • Great post as always MMI,thanks! I have experienced similar divergence in my british stocks as you have,2/3 of them (the big international players) have done the best of any stocks i own since brexit even with taking account of the weakening pound versus my local currency in Finland (euros).
    I sold my only UK homebuilder (Berkeley) in may before the referendum and so far that seems to have been the correct decision as they are heavily London-based luxury apartment player maybe catering heavily to the well-off workers of their financial sector.

  • Good Performance (in relative terms). Your slow investing style seems to pay off. At least this year (not YTD) it also seems to be better than that of RV Capital’s Business Owner Fund 🙂

    Andre Kostolany once said: “Wer die Aktien nicht hat, wenn sie fallen, der hat sie auch nicht, wenn sie steigen.” which is more or less exactly, what you wrote in the last part of your article.

  • Congratulations on your Performance!

    “when people try to be smart and try to protect the downside either by trying to time the market and/or use complicated products etc.”
    How do you feel about going into “safer” assets/stocks like Nestle or KO? (sorry for the bad example)

    “So maybe there is some opportunity to be found in real estate at some point in time.”
    Looking forward to read more about it from you! 🙂


    • “Safe” stocks are Ok when they are attractively valued, otherwise not. You shouldn’t pay a premium because they are “safe”, because if you pay too much, the can become quickly “not safe”..

  • Well balanced and thoughtful article as always

  • Expected vacancy rates are one concern and foreign exchange losses for non-UK investors are another, but cheap money shouldn’t be underestimated.

    In IT spending seems to be a real impact:

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