With the last trading day of 2017 behind us it’s time to tally up the results for the year. What I’m writing here is starting to get repetitive, but it was once again an excellent year with my portfolio up 30.12%. For US-based investors this might not sound so extraordinary given how markets performed worldwide, but remember that these results are in euro’s. With the euro appreciating 14.6% during the year I faced a significant currency headwind. Measured in dollars my portfolio is up a whopping 49.19% (while the MSCI ACWI is up 23.97% in dollars versus “just” 8.89% in euro’s). Volatility in exchange rates has a large impact on my results in the short-term, but in the long-run I expect positive and negative moves to cancel each other to a large degree.
* 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
It’s also becoming a tradition that I complain in these posts about how difficult it sometimes can be to track something so basic as your investment returns. I have complained about how CVRs, liquidation receivables and other esoteric assets make this process less than straightforward.
Another complication are taxes. I only care about after tax returns, but that is not the number that I report here. What I report is basically the aggregate of the returns as reported by my brokers, sometimes adjusted for items that they got very obviously wrong. Since we don’t have short-term or long-term capital gains taxes in the Netherlands this number matches my after-tax return pretty well. However, a large part of the dividend taxes that I pay during the year can be used as a tax credit. Normally this is all pretty small potatoes, except for this year when I had a large position in Sapec that paid a huge E150/share dividend. Not only generated this a sizable tax receivable in Belgium, it also generated a big tax credit in the Netherlands. I basically valued the Sapec tax assets in a way that they payment of the dividend didn’t generate a gain or loss compared to the previous day trading price. I think this is the most sensible approach, except now I report my performance after dividend withholding taxes with the exception of Sapec. Not a nice and clean situation, but I also don’t want to restate all my results to retroactively recognize the value of tax credits generated by dividend taxes in previous years.
As you can see there isn’t a lot I can complain about this year. Almost all positions performed pretty well, including my basket of Japanese companies and my basket of Italian real-estate investment funds. Inside the special situation basket there were a couple of big losers, but nothing too drastic. The Destination Maternity merger failed spectacularly, causing a 308bps loss while “undisclosed merger B and C” subtracted another 152bps and 52bps from the result. This was more than offset by a 788bps gain in the Sapec going private transaction and a 495bps gain in “undisclosed merger A”. I talked about all these outliers before in my half-year report, although at that point in time the Destination Maternity loss was at “just” 172bps and the merger was supposedly still on track to close. The second half of the year was characterized by smaller and steadier gains in the special situations basket.
My portfolio doesn’t contain any big surprises I think. It’s a fairly standard (for me) split between long-term value stocks and special situations. You can see a big position called “various receivables” that contains among other things the Sapec tax assets, delisted Tejoori shares and some CVRs that I managed to pick up during the year (for example, Ocera Therapeutics). My cash position is at the moment pretty big, but that’s mostly the result of a couple of deals that were completed just before the end of the year. Less than a week ago my portfolio was actually slightly leveraged, and I hope to be able to reinvest this cash soon. As you can see from the results above, focusing on special situations is proving to be a profitable activity for me, but the downside is a high portfolio turnover. You always need to find new situations to replace those that get completed. Hopefully 2018 will have a couple of nice ones in store for us! Have a happy new year, and may next year be just as profitable for you as this year was for me!
Author is long everything in the portfolio overview