benchmarking, Bloomberg Euro 500, emerging markets, frontier markets, FTSE 100, FTSE AIM All-Share, hedge funds, ISEQ, portfolio allocation, portfolio performance, S&P 500, value investing
OK, Top Tips done – now, it’s performance time!
And already I’m fully aware the designated performance benchmark here is very different for me than everybody else…which is, of course, entirely my own fault! Because I chose to include the ISEQ as 25% of my benchmark, and it’s performed quite spectacularly every single year. Which, you’ll have to admit, is terribly unfair… 😉
Unfair, because it jacks up my benchmark return every year. And because it’s such a painful & galling reminder that if I’d been just a little bit dumber, and simply overdosed on the Irish market, doubtless I’d now be reporting a totally amazing performance. Except…who bets their entire portfolio on a single market? Esp. the Irish market, which is a mere rounding error globally (in terms of market cap)? Intellectually, prudent diversification makes all the sense in the world, but emotionally it’s a lose-lose proposition: ‘Cos markets surge & you loathe being diversified, you just want to concentrated on the winners…then markets collapse, and being diversified is great, except you’re still inescapably miserable because you’re actually losing money! But at this point, the ISEQ’s clearly my personal cross to bear – so let’s just stick with it – here’s my 2015 benchmark:
Obviously, it’s been a game of two halves – with most markets suffering in the second half – so I’ve also added a H1 vs. H2 breakout. But wouldya ever take a gander at that ISEQ performance! Who’d have expected an additional +12.0% rally, after an +18.0% surge in H1? And that’s nothing…if I described a market which had clocked 15%+ annual returns in 2012-2014, would you ever have guessed a +30.0% return for 2015?! Methinks not… But then again, I’ve actually been consistently bullish on the Irish market for the past 4 years now – which I’m v pleased by, except when I agonise over the fact I capitalised far too little on such prescience. Sad, sad, sad…
Anyway, considering how the major markets have fared, a +7.5% benchmark gain is pretty daunting to match…let alone beat!? It’s only human to want to include an ex-ISEQ benchmark here. After all, most readers haven’t even got the ISEQ on their radar*, or they similarly limit their exposure (reflecting its tiny size). [*Um, why not..?! Here’s the numbers: 2012: +17.1%. 2013: +33.6%. 2014: +15.1%. 2015: +30.0%]. And while we’re at it, I should probably start including my usual hedge fund benchmark as a permanent alternative. As usual, some commenter will surely begrudge me that…but who cares, ultimately I live on absolute returns, and I tend to approach my portfolio accordingly. [And relative returns mean little when you’re losing money..!]:
As for the other benchmark components, they’ve been working out broadly in line with my latest macro expectations. [See my last macro series: I, II, III, IV]. Well, except for the recent dose of pessimism we’ve been experiencing since November… In terms of valuation, and the stronger dollar, I expected the S&P to retrace/trade sideways for quite some time to come – but I also hoped to see it throw up some high quality growth stocks to consider averaging into, which has certainly proved to be the case with some v interesting individual stock bargains now on offer.
As for the UK, I mostly focus on the London market for internationally focused companies/funds & an occasional small/micro-cap deep value situation. So I generally discount/ignore the headline FTSE performance, driven as it is by a collapsing natural resource sector. Fortunately, I continue to eschew the entire sector (except for one tiny, but still foolish, value investing experiment in junior resource stocks!), as I’ve steadfastly done for the past 4 years. [People tend to forget how long commodity cycles actually last, so they keep trying to catch a falling knife, and/or pick a bottom…but the best time to buy only comes when people finally & completely abandon the sector]. At the other end of the spectrum, I’m encouraged (but somewhat astonished) to see the AIM All-Share Index managed to deliver a +5.2% gain in 2015.
Europe also managed to deliver a reasonable gain, but was held back in the end by the continuing shortfall in Draghi’s actions vs. promises. [A prudent strategy, but one where investors are inevitably tempted to force his hand]. And let’s not even mention the sad & sorry performance of emerging and frontier markets, which went from bad to worse in 2015. Despite my continued belief in their superior fundamentals, I’m glad I’ve re-focused my attention more on Western companies who directly benefit from emerging & frontier growth (and particularly, their burgeoning consumer demand).
And now we’re mired in yet another bout of negative market sentiment. And frankly, I suspect that’s all it is, because I really don’t see what’s changed so drastically…unless a majority of investors are only now realising how fragile post-crisis underlying Western economic growth might actually be (in the absence of unprecedented QE). And that China would inevitably succumb to the sheer scale of its economy, and be forced to map out a more restrained (& consumer-led) growth trajectory. What I think we’re seeing here is mostly an ongoing struggle/gap between historical expectations & today’s reality. Japan is, of course, an instructive real world example of the underlying long-term realities of a deleveraging cycle (and of the key steps to take & the mistakes to avoid). Which is not to imply I’m suddenly turning pessimistic here – ultimately, I still won’t be surprised to see any lowering of long-term earnings growth expectations more than offset by falling discount rates & escalating valuations (particularly for a new global Nifty Fifty).
But for now, let’s return to performance…namely, mine! Here’s the Wexboy FY-2015 Portfolio Performance, in terms of individual winners & losers:
[**Exited holdings: Only the UNG:LN gain reflects an average sale price. ***NTR sale price reflects a €2.25 share redemption & a €0.10 year-end share price for the de-merged Altas Investments (which I’ll also deem sold, as it’s only a sub-1% portfolio holding now).]
[All other holdings: Gains based on average stake size (as of year-end 2014, adjusted for incremental buys/sells), and year-end 2015 prices (vs. year-end 2014 prices, or original investment write-up prices). NB: Gain for TLI:LN inc. a 2p return of capital, while the RMA:LN (name/ticker changed from European Islamic Investment Bank (EIIB:LN)) gain also reflects a 250p tender offer (for 34.6% of my holding). Otherwise, I’ve ignored all FX & regular dividends.]
And ranked by size of individual portfolio holdings:
And again, merging the two together – in terms of individual portfolio return:
With little change in my FY-2015 performance (vs. +10.0% in H1-2015), I’ll spare you any further analysis of individual stock gains/losses/returns. The same goes for any further individual stock commentary (again, see here…and, of course, last weekend’s Top Tips). Instead, let me offer one additional table, in terms of individual H1 vs. H2 portfolio return:
In the end, it doesn’t really matter how I slice & dice the numbers, let’s cut to the bloody chase – I clocked a +9.3% FY-2015 Portfolio Return, and I’m obviously delighted to out-perform my usual benchmark by a very respectable +1.7%, while also blowing the ex-ISEQ benchmark out of the water by +9.2%. And possibly most important of all…it is, of course, immensely satisfying to crush the S&P and all those over-paid Masters of the Universe (yet again!) by a humongous 1,000 basis points!
And so…why don’t we just leave it there for now?! 😉
Firstly – I’m a keen reader of the blog. Keep up the good work!
That said, I agree with writser. You should really report in one currency, otherwise the returns become meaningless. For example 2015 return for MSCI South Africa (MXZA) -2.56% in ZAR or -19.1% in EUR.
I can cope with you not translating fx returns, but surely dividends should be included in your analysis? Tetragon was flat in price terms but up +6.64% on a total return basis. The FTSE 100 was down -4.9% on price return, but down just -1.03% on a total return.
You guys are great…everything you’re suggesting would make my 2015 performance look even better (well, presuming I opted for EUR as a home currency)!
In the end, this is a stock-picking blog, so I want to keep performance & readers’ attention focused purely on stock-picking success (or failure) here. As for dividends: I prefer to compare my performance to price (rather than total return) indices, since that’s what most investors focus on primarily, so it’s only fair I exclude dividends too. And it probably gives readers/investors a better idea of what performance might look like after trading costs, fees, etc. (though I would note my portfolio turnover ratio is very low).
If I understand correctly this isn’t really your portfolio return but the return of your individual stocks, regardless of currency. So I’m guessing that if you had bought a couple of Zimbabwe stocks that went up 10000% due to hyperinflation your results would be even better? Maybe an idea for 2016 😉
How did your portfolio do in EUR / GBP / USD terms?
Yes, performance is ex-FX, i.e. it purely reflects my stock-picking performance.
As I’ve said before, I’m not going to complicate it with FX, since it’s probably meaningless (or even misleading) to many of my readers who operate in a wide variety of home currencies. [And this is increasingly true for me & many other investors too – as people become more mobile in their personal/professional lives, it can become extremely difficult to even figure what one’s home currency/exposures actually are… Of course, people in emerging & frontier markets are already long familiar with that kind of problem!]
And while I’ll express a currency macro view here occasionally, I’d prefer to avoid getting into too much debate & analysis over short-term currency moves (and/or the merits of hedging)…that’s a pretty pointless/thankless task, and if I wanted to do it, I’d prefer to do it while getting paid large sums of money by a financial institution!
But the hyper-inflationary idea’s a great one…might be the only sure winner in 2016! 😉 Although Asil Nadir, of Polly Peck fame, did finally get banged up (22 bleedin’ years later!?) for a sneaky little scheme much like that…well, among the many other financial/reporting crimes he committed.
Cheers & Good Luck in 2016,