New Portfolio Snapshot & Allocation

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agri-business, alternative assets, asset allocation, bubbles, cash, diversification, emerging markets, Europe, Event Driven, frontier markets, Ireland, luxury goods, macro investment thesis, mobile, natural resources, Nifty Fifty, portfolio allocation, property, smartphone revolution, UK, US, volatility

Welcome to the dog days of summer…

A good time to pause & take stock of my portfolio. Following on from my recent H1-2017 portfolio performance post, here’s my Top 10 Holdings today:

In fact, the table lists all of my current disclosed holdings. And just to add some overall context, only five of these holdings actually feature in my Total Portfolio Top 10, while Newmark Security doesn’t even make the Top 20 any longer.

I won’t add new commentary here, since I last focused on my big H1-2017 winners & losers, and covered all my disclosed holdings in this January Top Trumps post. Not to mention, the rash of new investment write-ups this year: Alphabet (GOOGL:US), Record (REC:LN) & Applegreen (APGN:ID). But for your reference, I will provide corporate website & Bloomberg links, links to relevant historic posts & write-ups (remember, good investment theses tend to evolve slowly!), plus the latest share price & market cap for each stock:

i) Alphabet (GOOGL:US, or GOOG:US)   (9.5% Portfolio Holding):

‘So Why Not Google It..?’

Share Price:   USD 940.08

Market Cap:   USD 648 Billion

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Baby Boomers…Yes, It’s All About Them!

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alternative assets, American Dream, austerity, baby boomers, consumerism, emerging markets, entitlement spending, fall of communism, frontier markets, globalisation, Japan, Me Generation, Millennials, USA

In my last post, I acknowledged logic tends to fly out the window in a market correction, and fear & greed take over the driving. My advice was to take a deep breath, just accept the fact we don’t always know what’s coming next, and to positively transform the compulsion to do something anything to relieve your market-induced stress. Because a correction’s a wonderful upgrade opportunity, a chance to (re)deploy your weaker portfolio holdings & cash into higher quality growth companies – those compounders you hardly ever get to buy. Happily, things look a little rosier now (a special thanks, Japan!), and hopefully we’re now heading into a traditional year-end rally…

Of course, long-term performance is the best reminder to always remain invested in the market. Unfortunately, fear & greed can quickly undermine such compelling logic. Companies face a similar issue – it takes a great leader to keep a company set on its long-term growth trajectory, despite all the setbacks it will obviously encounter. The idea great leaders are great storytellers is interesting in this context – it suggests numbers & analysis aren’t enough, people often require a compelling narrative to motivate & help them stay the course. In terms of the markets, the more you can interpret & understand the narrative of the past, the better equipped you will be to see the long-term narrative arc & how it might continue playing out in the future.

So, let me share some of my market narrative. Remember, it’s a story – it doesn’t require proof, and it won’t necessarily remain set in stone. [Accordingly: I’m sure I’ll include plenty of links, but I’ll try resist the temptation to jam this post full of graphs & figures]. You may nod your head, agree, and ponder the implications for your own portfolio – or you’ll replace it with your own narrative…and that’s good too. I’m going to focus on the US here: i) because it’s the growth-engine of the world, and ii) where the US goes, much of the world tends to follow. I’ll also focus on the Baby Boomers – because they bloody deserve the blame…for just about everything! [I promise you’ll hear this more & more in the years to come]:

The Boomers grew up to a constant refrain: A never-ending list of the immense sacrifices and hardships their parents & grandparents endured during World War II & the Great Depression before it. Quite a dose of survivor guilt to be saddled with… Except when they started to come of age in the ’60s, they looked ’round and saw they were actually living in the richest & most powerful country on earth. Hardship and sacrifice seemed like rather quaint & irrelevant concepts, while sexual & political liberation beckoned as a far more enjoyable way to embrace young adulthood. Unfortunately, just when getting a job, getting married, and having kids began to enter the equation, everything turned to shit…

Mea Culpa…

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alternative assets, blogging, developed markets, diversification, emerging markets, frontier markets, growth investing, portfolio allocation, technical analysis, value investing

Surely about time I address this post to readers – the majority of these mea culpas are genuine apologies, the rest are probably just a little cranky:

i) ‘Sorry I didn’t get to your email/comment sooner…’

I like to think I’m fairly good at keeping up with your emails & comments – well, most of the time! As I’m sure you know, if you neglect to answer an email immediately, it’s all too easy to lose track of it. There’s also a daily mountain of spam I have to traverse – at this rate, I should be ditching the investing lark, ‘cos apparently I could be making an easy million squid a day instead… [I must applaud the sheer persistence & inventiveness of the Nigerian people – so definitely an economy worth considering! Guaranty Trust Bank (GRTB:LI), anyone?] But hopefully I get to (almost) every email in the end, even if it takes a week or three – if I don’t respond in a timely manner, just ping me again.

Unfortunately, I tend to suffer from a ridiculously compulsive version of ‘If you don’t do it well, why bother doing it at all?!’ So emails invariably seem to demand a specific & in-depth reply – um, which I often have to get ’round to completing… Might be a good idea to keep track of some of my recurring reader dialogue(s), and summarize/respond to them more systematically here instead – we’ll see, perhaps it might offer up a couple of interesting insights for readers.

But please, keep ’em coming, they’re much appreciated. Investing’s ultimately a pretty solitary activity, so ‘work’ socializing tends to be a more deliberate affair – emails/comments are a great opportunity each day to just hang out at the ‘water-cooler’ & shoot the breeze with fellow investors!

ii) ‘Sorry, yeah…actually, I did see that headline’

There’s obviously blogs out there providing excellent daily/weekly updates of the latest & most relevant news, weekly reading links, company & valuation updates, plus other interesting snippets & topics. Clearly, this blog isn’t one of them…

I’m definitely grateful for & awed by their industrious contribution, but personally I’m more than happy to rely on the fact you’re all reading & analyzing the same headlines as me! 😉 And from my perspective, individual headlines usually only add very incrementally to the mosaic of knowledge I already have about the markets, sectors & stocks I’m interested in. And in my defence, I also fall back on my Twitter account – I’ve somehow managed to accumulate an horrific 8,000+ tweets at this point, so surely there’s some interesting & contemporary tweets among them!?

iii) ‘Sorry I poured cold water on your favourite stock’

Wexboy Portfolio – H1-2014 Performance

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alternative assets, benchmarking, Bloomberg Euro 500, correlation, diversification, FTSE 100, FTSE AIM All-Share, Irish shares, ISEQ, portfolio allocation, portfolio performance, quantitative easing, S&P 500, stock ideas

OK, that’s enough TGISVP (though rubbing resource muppets’ noses in it is lots of fun) – time for the rubber to hit the road: So how did the Wexboy Portfolio make out in H1-2014?! Well, first you may want to reference my FY-2013 performance – now, let’s turn our attention to my benchmark indices:

[NB: I’ve dropped the FTSE Eurotop 100 – I can find it elsewhere, but I’m used to seeing it on Bloomberg.com & I can’t find it as a ticker any longer. I could use the EURO STOXX 50 (SX5E:IND), but that’s a ridiculously small universe of stocks, so I’ll opt for the Bloomberg Euro 500 (BE500:IND) instead – not as well known, but functionally it gets the job done.] [btw Bloomberg’s fantastic, but they have some annoying habits – on the one hand, they abruptly discard useful features, while they also add awesome new features which they barely ever highlight!? Check this out:  Bloomberg Industry Leaderboard].

A +3.4% benchmark gain isn’t too inspiring – quelle surprise, the S&P’s the only index which really makes the grade! And the individual indices don’t bode well for my own portfolio, since it’s particularly focused on the UK. In my case, that’s more about UK-listed stocks (& funds), rather than UK-exposed stocks – but in my experience, a poor FTSE performance usually weighs on both. As for the US, I suffer from the inverse – I have a decent allocation to US-exposed assets, but little exposure to US-listed assets! I also opted for the UK & Ireland as an attractive substitute for a European portfolio weighting – again, that focus may hurt me (though the ISEQ’s performance was only marginally worse). This is a fairly typical stock-picker problem:

Why make it so bloody complicated…when the simple & most obvious strategy is so often the winner?!

Fortress – On the Ramparts

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% of AUM, alternative assets, asset managers, Blackstone, FIG, Fortress Investment Group, Gagfah, hedge funds, KKR, Logan Circle Partners, Newcastle Investment Corp, private equity funds, Springleaf Holdings

When I posted my first writeup on Fortress Investment Group (FIG:US), it was May-2012 & the share price was only $3.11. Buying the shares (& writing about them), I felt like I was in the thick of battle – trying to defend a breached portcullis in a last-ditch & perhaps doomed effort! [In hindsight, the more revulsion I hear about a post/company, the more promising the investment opportunity might actually be…] But the situation certainly looked much safer by December (with the share price at $4.38), when I posted a follow-up piece: Another Assault on Fortress. And now here we are, standing proud & tall on the ramparts, masters of all before us – the share price is $8.17, and even traded up to $9.00+ recently!

But ramparts aren’t about the view, they’re designed for spotting danger. My last fair value price target was $8.84 per share – we need to do a fresh survey. How much upside potential is now on offer? And more importantly, has our margin of safety been eroded to unacceptable levels?

OK, let’s do a quick wrap-up of 2012, and then take a closer look at progress YTD-2013. I plan to stick with roughly the same valuation methodology, so I definitely recommend you revisit my last two posts (linked above). However, it would be handy to reproduce this table here:

Portfolio Allocation (XIII – Alternative Investments)

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activist investors, Alternative Asset Opportunities, alternative assets, Argo Group, asset managers, catalyst, CLOs, correlation, distressed investing, Event Driven, hedge fund seeding, hedge funds, hedge funds of funds, Livermore Investments Group, mortgage hedge funds, portfolio allocation, proprietary trading, Raven Russia, Tetragon Financial Group, thematic investing, volatility

Continued from here.

For now obscure reasons, this series was originally called ‘Hitting the Century‘. At this point, I’ve bowed to the inevitable & given it a more sensible name. It’s still a v leisurely stroll through the topic of portfolio allocation. I usually touch on stocks I actually own quite briefly, as the main objective is to expand on the logic (& attractions) of my specific portfolio allocation. Also, since my approach to investing is better described as thematic rather than (say) geographic, I generally highlight a selection of stocks which may exploit particular theme(s). As a reminder, here’s the allocation pie-chart I’ve used for the series:

Hedge (7%):

Hedge funds were a far larger component of my portfolio. This reflected a gradual migration over the years from open-end funds (many moons ago), to closed-end funds & investment trusts/companies, and finally into hedge funds. This was accompanied by an increasing reluctance to delegate my investing & investments. [Which may surprise you, as investment companies still play a significant role in my portfolio. However, this tends to now reflect my delegation of a specific/specialist investment theme – or simply the selection of a fund itself as an attractive investment, due to the presence of a large discount/catalyst/etc.]. Hedge funds, however, appeared to potentially offer the magic combination of lower volatility/correlation & better long-term returns. Sure, maybe they’d under-perform a bull market, but who cared – they simply ignored down markets, right?!

Hitting The Century (XI – Distressed)

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alternative assets, Argo Group, asset managers, bankruptcy, BDCs, business development companies, Colony Financial, de-leveraging, distressed assets, distressed consumers, distressed investing, Fortress Investment Group, income/dividend bubble, JZ Capital Partners, litigation funding, private equity funds

In my last post, I briefly highlighted some difficulties a private investor might face with classic distressed debt investing. Recognizing these limitations, I usually prefer to stick with distressed debt asset managers & investment vehicles. However, there’s many other firms in orbit around this opportunity. Even better, my definition of distressed investing stretches to include what I call the distressed consumer. Consider it exploitation of the poor, if you wish – but the real bonanza is actually much more equal opportunity. To be blunt, it’s really about the exploitation of the (financially) stupid… And stupidity’s an enduring human frailty to bet on, despite the frequent & pointless efforts of politicians to legislate it away.

Let’s begin with the business end of things:

Picture you’re an ailing company whose business & finances are beginning to seize up. You’ve executed on most of the usual cost-control & cashflow measures already, but you still need more juice… Your book of receivables might yield some quick cash – Intrum Justitia (IJ:SS) can help. PRGX Global (PRGX:US) may unearth new and unexpected savings, waste & fraud for you. [PRGX is now expanding into US healthcare. Considering the unconscionable levels of fraud, waste & over-billing in that industry, this could offer them a huge new growth opportunity]. You might have been pinning your hopes on launching/winning a crucial lawsuit, but now you can’t afford the legal expense & uncertainty – Burford Capital (BUR:LN), Juridica Investments (JIL:LN) & IMF Australia (IMF:AU) can lower your risk & provide the necessary funding. Maybe you should also start selling anything that isn’t nailed down – call Ritchie Bros Auctioneers (RBA:CN).

Argo Group – Awaiting Results

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% of AUM, alternative assets, Andreas Rialas, AREO, ARGO, Argo Group, Argo Real Estate Opportunities Fund, asset managers, distressed assets, distressed investing, emerging markets, European sovereign debt crisis, Expected Value, intrinsic value, Kyriakos Rialas, Price/Cash, share buyback, shareholder activism, tender offer, The Argo Fund

Argo Group’s (ARGO:LN) Final Results should be released shortly (I’ll try confirm the exact date). In my most recent Argo posts, I published two letters I’ve sent to Kyriakos & Andreas Rialas (CEO & CIO, respectively). I encourage you to review both letters before continuing:

Here’s the first letter (from Nov-2012)

Argo’s share price rallied +6.2% in the following week.

And the second letter (from Dec-2012)

This was sent on behalf of myself, Guy Thomas & some other (smaller) shareholders, representing an aggregate 5% shareholding in Argo. The letter focused on a single specific shareholder distribution proposal. ARGO subsequently rallied +6.5% (in the following week). [In fact, the share price is now up an impressive +36% since my November letter. Despite the rally, I believe Argo remains just as compelling an investment proposition – I currently have a 5.4% portfolio stake].

My recommendations & proposal require little (further) explanation, and I expect shareholders will enthusiastically support all efforts to realize & enhance Argo’s intrinsic value. But I will revisit them in the context of an upcoming results preview – plenty of current & prospective shareholders have emailed me about Argo, so I hope you’ll find this useful. Let’s first consider Argo’s existing funds:

Tetragon – Ready To Be A Star

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alternative assets, asset managers, CLOs, hedge fund seeding, Leon Cooperman, leveraged loans, Paddy Dear, Polygon, Reade Griffith, residual equity tranches, Tetragon Financial Group, TFG

Continued from here.

The ultra-quick recap:  Leveraged loans avoid most interest-rate price risk & enjoy better (default) recoveries than junk bonds, while CLOs offer diversification & loss mitigation, plus varying levels of tranche risk. These defensive attributes, coupled with current CLO yield spreads, may offer the best credit opportunity for 2013.

I like that risk/reward profile, but honestly, current yields & potential returns from leveraged loans/most CLO tranches don’t offer the level of return I’m seeking. Yes, you know where this is going… I want to take those defensive attributes & re-invest them into a more aggressive investment – residual equity tranches!

Time now for a proper introduction:  Tetragon Financial Group (TFG:NA)

Tetragon IPO’d at $10 in 2007, as an Amsterdam listed closed-end investment company, primarily investing in US CLO residual equity tranches. Some funds & business development companies (BDCs) have recently added CLO equity exposure, but TFG’s one of the few pure plays out there. It’s managed by Tetragon Financial Management (TFM), which is controlled by the founders of Polygon Global Partners. Um, let’s just dive straight into the bad stuff…

2012 – Aaah, How Was It For You..?

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alternative assets, Argentina, Argo Group, Avangardco, Baker's Dozen, diversification, dividend yield, EIIB, frontier markets, hedge funds, home bias investing, Irish shares, JPMorgan Russian Securities, NAV discount, Petroneft Resources, portfolio allocation, portfolio performance, Renaissance Russia Infrastructure Equities, Richland Resources, Russia, Sirius Real Estate

[Here’s my last performance report, for reference].

OK, just in time, my performance analysis got a bit more sophisticated. It now includes dividends, and is calculated on a weighted average gain basis, so now the impact of larger & smaller portfolio stakes is recognized. I think I’ve tracked any increase/decrease in portfolio holdings pretty well during the year, via Twitter (so plse sign up as a follower!) & blog comments. [No point in having interested readers if I don’t post such relevant info on a timely basis]. This allowed me to calculate an average portfolio stake for each holding, which I think is the best metric to use.

I did, however, stick with my original yr-end 2011 or 2012 write-up prices as a cost base – I didn’t want to drive myself crazy calculating average net purchase prices! However, I know I’ve subsequently added to portfolio holdings at higher & lower prices, so I think that pretty much cancels itself out. It also means I’ve omitted partial profits harvested on certain holdings, so my total return may be marginally understated.

Overall, eyeballing my respective analyses, dividends & portfolio weightings have in total (on a pretty even split) added about 2-3% to my annual return. The pretty low contribution from dividends may surprise you, but don’t forget I’m none too enamoured with them… See here, here & here. As far as I’m concerned, if you’re impressed enough with a stock’s valuation & prospects to actually buy it, surely you’d prefer to see it compound its earnings?! Only a third of my holdings pay a dividend.