Half-year portfolio review, 2015 edition

With June behind us it is once again time for the obligatory performance review. The first half of 2015 delivered a solid double-digit return and thanks to Greece’s troubles earlier this week I actually managed to beat the benchmark once again. At one point this year I was underperforming the benchmark by ~10%, mainly because the MSCI ACWI has a huge allocation to US stocks and as results profits more than my portfolio when the euro weakens. Foreign FX gains accounted in the first half of 2015 for approximately 33% of my return while it accounted for roughly 63% of ACWI’s return. This is after the EUR/USD moving back from ~1.05 to ~1.11.


* Return in euro’s after transaction costs, dividend withholding taxes and other expenses
** Benchmark is the MSCI ACWI (All Country World Index) net total return index in euro’s

The MSCI ACWI isn’t really a good benchmark for my portfolio, but I don’t think there is a better alternative since the majority of my portfolio consists of securities that aren’t part of any index, or if they are they don’t share that index with the other constituents of my portfolio. Because of that the MSCI ACWI should be viewed more as a reference point instead of a true benchmark. The reason that I use it is the fact that it is well-known, globally diversified and I aim to take roughly the same amount of risk as a diversified 100% equities portfolio

Performance attribution H1 2015

In the first half of 2015 special situations generated a large part of my profits, and I expect that this trend will continue in the second half of 2015 since I’m currently invested in a large number of special situations. MCGC is, of course, one of these and I’ll expect to write-up another idea later this week since I Invested in a Chinese merger arb once again. Currently, 28% of my portfolio is allocated to special situations as can be seen in the graph below:

Portfolio overview 2015 H1

The 28% allocation to special situations is a new all-time high, simply driven by the lucky circumstance that I’m finding a lot of interesting situations this year while I’m at the same time not finding many attractive long-term value stocks. Short positions that (partly) hedge my exposure in various special situations are however not visible in this diagram. My portfolio is currently 97.2% long and 13.5% short for a net long exposure of just 83.8%: pretty conservative. I actually target a higher net long exposure, but when you enter a long/short trade where both the long and short leg consists of non-marginable securities there is not a lot you can do.


Long everything in the portfolio overview

Pharmstandard tender offer completed succesfully

The tender offer for the Pharmstandard GDR’s has been completed successfully today. The deal was completed without a hitch and the cash has already hit my account. Making 3% in two weeks time in – what I perceived to be – a low-risk transaction is pretty sweet.

I’m wondering if Pharmstandard GDR’s are, after the completion of the tender offer, once again an attractive deal. The price has dropped to $4.58 while Augment Investments intends to take the whole company private. If the remainder of the shares is also bought at $5.50 you could make a solid 20% return. Usually in a transaction like this that would be a reasonable assumption, but I’m not so sure if that will be the case here. I believe that the plan is to cancel the listing of GDR’s in London and then make a mandatory tender offer for all ordinary shares under Russian law. At that point of time, they will presumably offer a price in rubles that may or may not be related to the 5.50 dollar bid for the GDR’s. In addition to that I doubt that minority shareholders are well protected in Russia and if Augment Investments can squeeze out the remaining shareholders for less than that they will probably do it. But if I have a reader who knows more about how this transaction will unfold I’m of course all ears!

On a somewhat related note: last week I finished reading Bill Browder’s “Red Notice”[1] about an American fund manager who thought that activist investing in Russia was worth trying. It’s not the kind of book that’s going to make you a better investor, but it is well written, fascinating and reads like a thriller. Highly recommended!

Red Notice book cover[1] I’m probably the only blogger stupid enough to link to Amazon.com without an affiliate link.


No position in PHST.L anymore

Beximco Pharmaceuticals receives US FDA approval

Beximco Pharmaceuticals announced today that they have become the first Bangladeshi company to be approved by the US FDA[1]. The company apparently thinks that this is a pretty big deal, and they have even modified their homepage to display a full-size poster to celebrate this achievement. I can imagine that exporting drugs to the US could be a good business, but I doubt that the financial impact of this approval will be big. They already have approvals from dozens of other countries and so far exports only account for 4.5% of sales. But perhaps the US FDA approval could be a turning point and also make it easier to sell in other countries.

Beximco Pharma US FDA approval poster (cutout)

[1] Not sure what’s exactly the news, in the 2014 AR they already wrote that they successfully completed the US FDA inspection.


Author is long BXP.L

Exited Clarke Inc

I sold my position in Clarke yesterday. I needed to create some room in my portfolio, so I looked at my portfolio and asked myself the question: “If I would start from scratch today, what stock wouldn’t I buy”. AIG was actually the obvious answer, but selling that stock wouldn’t solve my problem because I have a lack of margin room in my portfolio while my net exposure is still comfortably below 100% (my target). The main reason for this is a long/short trade where both legs are non-marginable (like most of the stock I own). In this group Clarke was the obvious sell.

Since I initiated my position in the company the discount between book value (adjusted for the unrecognized pension asset) and the stock price has shrunk from 27.7% to 14.4% thanks to aggressive share repurchases. Because the discount is now a lot smaller future share repurchases will add a lot less value while fixed overhead costs remain. As a result, the stock is in my opinion now trading fairly close to fair value which I estimate at ~CA$13.50/share.

Because of the share repurchases and the shrinking discount I made a 22.5% return in roughly six months while the underlying value of Clarke’s assets remained basically unchanged: Holloway is down a couple percent while Terravest is up a little bit. Not a bad result in my book!

Clarke Inc June 2015 NAV


No position in Clarke anymore

Pharmstandard tender offer arbitrage

Pharmstandard is a Russian pharmaceutical company that is controlled by Victor Kharitonin. He is trying to take the company private (after IPO’ing it in 2007), and to make this happen Augment Investments has launched a tender offer for the GDRs that trade in London. The company is offering US$5.50/GDR while these last traded at US$5.31 for a spread of 3.6%. That doesn’t sound like a whole lot, but with the tender offer expiring at the end of next week the potential IRR is pretty high. If we assume that it takes another week before payment is made the IRR is would be ~150%. With Augment Investments waiving the 50% minimum acceptance condition this appears to be a low-risk transaction, although there is some amount of unquantifiable random Russian risk: you never know if all parties continue to play by the rules.

In addition to this the full tender offer memorandum is nowhere to be found online, and the company has so far not responded to my request to provide it. So perhaps I’m missing something that everybody else knowns… Despite that, I think buying a couple of shares and tendering them is a decent bet. Otherwise, I’m hoping I have a smart reader that knows more!

Pharmstandard shareholder structure


Author is long Pharmstandard