Performance review 6M 2018 – Comment: “Skate to where the puck is going”
-Performance 6M 2018:
In the first 6 months of 2018, the Value & Opportunity portfolio gained +1,45% (including dividends, no taxes) against -2,88% for the Benchmark (Eurostoxx50 (Perf.Ind) (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%)).
Some other funds that I follow have performed as follows in Q1 2018:
Partners Fund TGV: +4.68%
Squad European Convictions +2,22%
Ennismore European Smaller Cos +1,72% (in EUR)
Frankfurter Aktienfonds für Stiftungen -0,54%
Evermore Global Value -0,39%
Greiff Special Situation -0.92%
Squad Aguja Special Situation -5,45%
Paladin One +1,8%
The top 3 performers on a weighted basis were for 6M 2018 were:
|Weight 12/17||Perf ytd||Attr|
The worst 3 performers for 6M were:
|Weight 12/17||Perf ytd||Attr|
The “flop 3” clearly shows the damage done by Silver Chef (already sold) and Metro, which alone account for around -3,5% in absolute performance. On the other hand, especially TGS Nopec has been a pleasant surprise. Holding this stock now for 4,5 years, I had gone through some very rough times, but know it looks like that my patience slowly is paying off.
The only transaction in Q2 was the initial purchase of a 2% stake in Paul Hartmann. As Q2 is always the strongest dividend quarter, Cash is at around 13% and will increase further, as I expect another payment from the Kanam Fund and as I plan to tender my DOM shares.
The current portfolio, as always can be seen under the dedicated portfolio page.
My average holding period now has reached 3,2 years (ex cash) which I find very satisfying.
Although the major indices didn’t do much in absolute terms in the first 6 months, the spread within indices is significant. The best stock was Deutsche Börse with +20%, the worst Deutsche Bank with -42%.
It is also pretty obvious that Tech stocks are doing much better this days. Why ? I think part of that can be explained that mew tech oriented companies are disrupting one industry after the other and those “traditional” companies that do not adapt quickly enough will not survive.
A good example is for instance the current discussion that (controversial) tech company Wirecard will replace Commerzbank in the Dax. Wirecard is a company that has focused on the profitable parts of traditional banking (cards, electronic payments etc.) but skipping all the unprofitable stuff such as branches etc.
These trends can be seen in other industries: tech driven startups are focusing directly on the largest profit pools” of established industries and are attacking where it hurts most. Insurance for instance is a lot slower, but it is also happening there. The most succesful startups like Lemonade even go a step further and focus on the most profitable products AND the most profitable customers. Digital marketing allows them to target exactly the clients they want (young, aspiring people), which is something traditional players can’t or don’t want to do. In general, especially younger customers are expecting much easier interfaces and customer centric organizations than the generation before.
There are many more examples, like the recent problems of Fielmann, one of the German Smallcap super stars over many years. The company issued a fat profit warning recently and part of the problem is clearly the booming online market. I don’t know if Fielmann upgraded its IT systems but a 3 or 4 years ago they still had to Fax (!!!!) data from one branch in Munich to another because I ordered my glasses not in the original branch.
One thing that has changed in my opinion is the fact, that funding these days is not an advantage anymore for established players. Some years ago, the biggest risk even for successful start-ups was that they suddenly might run out of cash. These days however, if a start-up has a good business model, funding is almost guaranteed and thanks to Softbank, the amounts are sometimes mind-blowing. There might be some bubbles forming already, but I think start-up funding has been transformed already and will make even more difficult for the established players in the future.
What does this mean for us investors ? I think especially as value investors, “cheapness” can be actually quite dangerous. A low valuation can be either a potentially great investment or indicate that the company is attacked and maybe already losing. Clearly, over reactions in stock prices can create opportunities in the short run, but for long-term investors it will most likely pay off to stay away from these kind of investments.
I think it makes also sense for traditional Value Investors to look at what’s happening in the Venture Capital space in order to get an idea which sectors are becoming under attack. I think this approach can be best reflected by the following quote from Ice hockey legend Wayne Gretzky:
““Skate to where the puck is going, not where it has been.””
For me this means that especially value investors need to focus much more on what’s lying ahead a much less on historical numbers and potential “mean reversion” assumption.