Performance Q3 2016 – Random observations

Performance:

In Q3 2016, the portfolio gained by +7,5% vs. +7,7% for the benchmark (25% Eurostoxx 50, 25% Eurostoxx small 200, 30% Dax, 20% MDAX).

YTD the score is +5,9% vs. -2,5%, since inception (01.01.2011) +121,8% vs.63,5%. As always Quarter & YTD numbers are very volatile and can easily fluctuate +/- 5% on relative basis in very short time.

The detailed month-by-month table, graph and links to all the reviews can be found on the performance page.

My subjective “Peer Group” has done like this YTD:

Partners Fund TGV: +6,9%
Profitlich/Schmidlin: +0,2%
Squad European Convictions +9,3%
Ennismore European Smaller Cos +13,3%
Frankfurter Aktienfonds für Stiftungen +3,5%

The best performing shares in the portfolio in Q3 were:

Coface (+38,7% since purchase)
Citizen Financial (+23,7%)
Kinder Morgan (+23,6%)
Draeger GS (+20,7%)
Ashmore (+14,7% in EUR)

Worst performers:

Aggreko (-27,4%, ouch…)
Pfandbriefbank (-7,3%)
Aixtron (-2,0%)

In Q3, pretty much everything went up, even the majority of the financial stocks. With Coface, the timing was extremely lucky. I had no idea that the stock would rebound so quickly, especially as there was nothing new fundamentally.

With Aggreko I have no idea why the stock price slumped so strong, as Brexit should not be an issue for them. According to Bloomberg most of the larger Asset Managers were selling with only very little buying.

Q3 transactions:

Sold:

The 3rd quarter was quite active. I have sold the full Hornbach Baumarkt position in August (too early) at 25,60 EUR per share, resulting in a total return of 12,31% since 1.1.2011 (not p.a., really total !!). As I had written in June, I don’t see much mid- or long term upside in the stock despite looking cheap. I have also sold NN Group at 26,50 EUR per share (funding the Coface purchase), realizing a total gain of +31,8% over ~2 years, and I sold the last part of the Commerzbank HT1 Tier 1 bond with a total return of around 128% since 01.01.2011. On top of that I sold 0,5% of Lloyds Bank at 0,64 EUR at a loss of ~-27% to fund a UK purchase. At the time of writing, I have sold my Aixtron position at a loss (-4%) but technically this is already a Q4 transaction.

Bought:

As new position I bought Coface as “contrarian” investment plus Kuka & Aixtron as special situations. On top of that I bought a yet undisclosed “UK mystery” stock where I hadn’t the time yet to finalize the write-up. No worries this time, the undisclosed stock is already down some -8% so no one has missed anything….

In theory this would be 4 new positions and violating my 1 new position per month rules, but I have decided t hat I don’t count the special situations into my 1 transaction per month limit as with special situations one needs a little more flexibility.

I added 1% to my SIlver Chef position in August after the share price dropped and the annual report in my opinion was quite positive.

Overall, the portfolio has now 28 position which is close to the upper limit of position size. Cash level is relatively low at 4%. That is one of the lowest cash quotas I run for quite some time, but at the moment I see many opportunities despite the overall relatively negative sentiment. At the time of writing, I have sold Aixtron, but that is technically already a Q4 transaction.

The current Portfolio can be seen as usual on the dedicated portfolio page.

Random observations

Instead of a comment just a few observations:

  • The negative rate “medicine” seems to eat its way into the financial industry. I outlined the impact on banks, but especially for Insurance and Asset management pretty much the same applies. In contrast to banks, Asset Managers and Insurers can do M&A more easily. Just in the last 2 days, 2 mergers have been announced: Henderson & Janus and NN Group with Delta Lloyd. The NN & Delta take over is clearly a defensive move, but also Henderson & Janus will result in some serious cost cutting in order to make that work. I think those were not the last transactions in those 2 industries.
  • Some areas in the capital market look “bubbly”. Especially here in Germany Real Estate looks rather “too hot”, but also Venture Capital and “Alternatives”, especially Infrastructure look extremely expensive everywhere.
  • One of the biggest problems in Venture Capital at the moment is in my opinion that there is so much money chasing ideas, that every good idea gets immediately copied at least 3 times and making life hard for everyone.  In many cases it looks like that even the winner does “Not take it all” but is getting itself into troubles for instance in the current Food take away/delivery craze.
  • Another area where prices do not reflect risk in my opinion are corporate bonds and credit spreads. Even before ECB buying, credit spreads were extremely low but now I think owning corporate bonds is mid- to long-term not a good idea. As I have mentioned before, I wouldn’t touch corporate bonds from German issuer even with a “10 foot barge pole” as the German insolvency law makes it easy to kick out any unsecured bond holders.
  • On a positive side, the stock market in my opinion offers many opportunities. There are many spin-offs (Maersk, SCA, Donnelley) which could be interesting plus there are many “fallen angels” among which there could be the one or the other “Gem” hiding. My to do list gets longer each week. On the other hand my list gets shortened by M&A activity. In the last weeks/months at least 10 companies on my “To do list” have been taken over, among others Beter Bed, Moleskine, Ausy, LinkedIn, Mr. Bricolage, Ingram Micro, Engineering SpA. There seems to be a lot of money out there chasing deals.
  • Just a sign how “Bifurcated” the stock market looks at the moment: Currently the DAX is down YTD -1%. Interestingly, only 8 of the stocks have single digit returns YTD. 10 do have (high) double digit gains, and 12 stocks (high) double digit losses. So there is clearly little middle ground. Either you are a winner or a loser. However in my opinion this clearly creates opportunity. At least for now this also shows that index funds might have a larger share in stocks than in the past, but are not as influential as many people think. If index funds would be the driving force, then stock returns wouldn’t be as dispersed as they are now.
  • However, not every fallen angel is a potential value investment. There are enough “disrupted” industries (utilities, banks, insurance, cars) where one has to be really carefull not to fall into the typical “Value trap” of cheap stocks in terminal or structural decline.

Overall, I do think the current market environment is clearly challenging but I think there are many potential interesting opportunities despite all the negative headline news. Actually, as a stock picker I find it the best investing environment since the “European crisis” in 2011/2012.

 

 

 

 

 

 

18 comments

  • For information: Fidelity acquired a 4% stake in Miko

  • Hi, what was the reason for selling Commerzbank HT1 bond ?

  • Strange, I don’t see many value stocks here -2011/2012 was much different….

  • Thank you for the great post. I really liked to read your insights, especially on the huge amount of money in VC. I am also thinking that there are currently not only few interesting stocks to pick. There are some interesting options, for instance to name one: La Doria.
    The stock movement of Aggreko puzzles me, too. I think it just didn’t match estimates and was beaten down. As Eddy Elfenbein said it today: we have winners and losers and not much in between.

    • With 45% of their sales beeing exports to UK, italian “La Doria” is a heavy bet for a strong pound and a soft (or no) brexit.
      If the pound continues to fall down the cliff, La Doria gets in quite bad waters.

    • I looked at La Doria long time ago (2012 ?) but it didn’t look interesting back then. A couple of 100% later I am still not sure what is psecial about them.

      • La Doria is a interesting business. They have a “franchise” based on Italian tomatos, they made it to grow in the last years, they have products, that are used daily/weekly, they are valued cheaply, they have growth opportunities (bio products). It’s not a great business, but maybe worth to look at it. Or what’s your opinion?

  • BeterBed hasn’t been taken over. There was a lot of speculation, but nothing materialized

  • Hopefully you sold Aixtron AFTER it went up more than 6% today!

  • “In many cases it looks like that even the winner does “Not take it all” but is getting itself into troubles for instance in the current Food take away/delivery craze.”
    In this case IMHO the real winner was the early bird “Pizza.de”, that sold its business in 2014 and took a lot of money (290 Mio?).
    https://www.deutsche-startups.de/2014/08/14/lieferheld-vernascht-nun-endlich-pizza-de/

    • By the way: Congratulations for you continuos outperformance – and thanks a lot for analyzing Coface! Obviously I was not the only one thinking it was very interesting!

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