Performance review Q1 2017 – Strategy update “Money Management”

Perfomance Q1 2017:

In Q1 2017, the blog portfolio gained +9,03% (including dividends, no taxes) against 7,77% for the Benchmark (Eurostoxx50 (Perf.Ind) (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%)). Since inception, the score is now +156,8% vs. 74,7% for the benchmark. The full details (and graph) as always on the performance page.

Some other funds that I follow have performed as follows in Q1 2017:

Partners Fund TGV: +10,88% 
Profitlich/Schmidlin: +5,56%
Squad European Convictions +8,81%
Ennismore European Smaller Cos 2,04% (in EUR)
Frankfurter Aktienfonds für Stiftungen +5,06%
Evermore Global Value +7,03%
Greiff Special Situation +4,13%

The first quarter was an unexpected good one. As I mentioned now multiple times, I would expect my portfolio to underperform in a strong quarter and outperform in negative periods.

Performance attribution

The top positive contributors in absolute terms were:

contribution absolute % YTD
Tonnellerie Frere Paris 2,0%
Ashmore 0,8%
G. Perrier 0,8%
Romgaz 0,6%
Miko 0,5%
Gagfah 0,5%

The only two negative ones were

TGS Nopec -0,2%
Silver Chef -0,3%

TFF released Q3 numbers in March which were quite good, although the stock clearly is not cheap anymore. Silver Chef announced a capital increase, which in my opinion makes sense but clearly did not have a positive impact on the share price.

Portfolio transactions

Q1 was quite “busy”. I exited the Kuka special situation in January, with an overall gain of around 5,5% as the tender was executed. I sacrificed part of the gain as I sold a smaller part in 2016 at cost to fund other positions, but overall this was a very good risk adjusted return for a 6 months holding period.

I sold Agrekko at a total loss of -5,0% in February. Plus, in order to manage my French concentration risk I completely sold down Pfandbriefbank (loss of 1,3%) and Coface with a gain of +50,5%. I also slightly reduced my Installux and IGE&XAO position. Finally I sold half of my Romgaz position to fund new purchases.

In most cases it would have been better to wait, but this is normal in a quarter like this with continuously rising prices.

On the other side I initiated 2 completely new positions: Actelion and Stada, both special situations with an M&A background. Additionally, I increased my positions Handelsbanken, Silver Chef, Majestic Wine and Gagfah.

In total the portfolio was invested at close to 100% by the end of the quarter. Keep in mind As always, the portfolio can be found on the portfolio page.

The 100% investment quota looks aggressive but in reality is not. First of all, Q2 is dividend “high season”, which means around 2% of portfolio cash will accrue without doing anything. Then there will most likely be the special dividend from SAPEC. On top of that, Delta Lloyd plus Actelion will most likely close in Q2 which overall will increase the cash level by +10%. I am not sure how Stada works out, but with a private equity buyer this could also happen in Q2.

Portfolio strategy update / Risk Management

For 2017, one of my goals is to improve my “money management”. So far I had a pretty standard approach: I would always start with a “half” position (2,5%) with the plan to increase if the case works as I think. I recognized that I often failed to follow-up on buying more and that I ended up with a portfolio of a lot of “half positions”.

So in order to improve this, I plan to do the following things in 2017:

  • increase the initial position size if I think that it is a really good idea
  • increase existing positions which I think are my best ideas
  • cut down on half positions where I am not fully convinced
  • introduce some minimum thresholds, such as:
    • my 10 largest positions should in aggregate be more than 50% of the portfolio

In order to do this in a more structured way I started using a simplified approach similar to the Kelly formula for position sizing. The relatively large sizes of my 2 new positions Actelion and Stada already reflect this approach.

With regard to those stated goals, I think I  managed to improve the portfolio significantly already in Q1. This is the comparison of end of 2016 vs. Q1 2017 with regard to concentration:

31.03.2017 31.12.2016
Top 10 52,7% 48,3%
Top 15 71,9% 64,9%

Some of this is driven by performance (TFF), but it most of it comes from my active purchases.

Clearly this will never become a highly concentrated portfolio with only 5 stocks or so because I think this doesn’t fit my (slightly paranoid) investment style. I am simply too sceptical to invest significantly more than 10% into any single position.

One side effect of this is clearly that I need to watch even more closely that I am still ok with the risk profile. A more concentrated portfolio means more volatility. Which in itself is not a problem but i think one needs to prepare mentally or it in order to prevent panic reactions.

As ususal, those targets are not set in stone but “work in progress”

 

10 comments

  • I think it does not make sense to compare yourself to Ennismore Funds, because a considerable part of the portfolio is short stocks. You unfortunately do not short (I honestly think you would be good at it.), so your return characteristics will always look different. Their longs are probably up 7-8% YTD, but almost half of that they lost on shorts.

  • Hi MM&I,

    As usual a very interesting topic. I find portfolio mgt to be equally important as stock picking criteria (valuation).
    I know this is very personal (mainly risk tolerance) but do you recommend any specific reading on size and level of concentration in the portfolio?

    Thank you

    • Hi Dave,

      without knowing someone’s preferences, it is clearly difficult too give a recommendation. It seems that 20-25 positions seems to be a good starting point for many value investors.

      However I think that the number of positions is not that important. More important in my opinion is to make sure that the “high conviction” ideas really get an adequate weighting. I think I haven’t done this properly in the past.

      I think you could achieve great results even with 40 positions or more if your 10 highest convictions have a share of 60%.or more.

      But again I am not in a position to give here too much quality advice…..

      mmi

  • maybe this fund would also be of interest to follow

  • Why you sold out Aggreko?

  • Congrats on the nice quarter.

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