With another year behind us it’s time to make up the balance for 2016. The year started somewhat challenging with global indices and my portfolio going down roughly 10% in February. If you would have told me that this would be followed by a Brexit and Trump winning the US presidency I would have predicted disaster, but instead the MSCI All Country World Index is up double digits and thanks to a truly phenomenal second half my portfolio finished the year up 43.6%. In some ways this is my best result ever. Because the amount of capital I’m working with has been growing it’s for sure my biggest year measured in euro’s, and because of some conservative accounting choices I think my performance is somewhat under-reported and in reality I’m beating the index with a (slightly) wider margin than in 2013.
* 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
When I started this blog I thought that roughly 5 years would be enough to build up a track record. I’m either extremely lucky to outperform the index like this for 5 years in a row, or I’m creating some true alpha. Of course, concluding that I’m adding alpha isn’t the same as estimating how big my edge is, and I think a 5 year track record is not even close to enough to answer that question. I wish I could confidently claim that I’m expected to continue to perform like this, but that’s probably not true. I don’t know what I can realistically expect going forward, but I doubt it’s the CAGR of more than 30% like the past five years. But I would be more than happy with just half of that, and perhaps that is possible :).
When you start investing you think that one of the easiest things to do is precisely tracking your performance, but since I started accumulating weird stuff that is non-tradable it isn’t that straightforward anymore. This year I spend money acquiring Alexza Pharmaceuticals CVRs, Dyax CVRs, shares in DNIB Unwind (liquidation trust), and Primo Water shares (in escrow) and warrants. They are all non-tradable and being marked to market at zero by my broker. Since some of these were big positions I couldn’t simply do the same in good conscience. That’s why I marked DNIB Unwind at cost while I marked the Primo Water shares held in escrow at market value. I believe this is still very conservative, but a bit more correct:
- I sold the DNIB Unwind shares after acquiring them since all liquidation payments are only for record holders as of 30 Aug 2016. Even though the shares were worthless after that date they continued to trade at a meaningful price. In a more aggressive valuation I could take credit for these proceeds which would increase the result by 157bps.
- I took full credit for the value of the Primo Water shares even though they are still hold in escrow, but I marked the warrants at zero. Valued with 30% implied volatility they are worth another 108bps.
- I valued the DYAX and ALXA CVRs at zero while valuing them at cost would add 70bps.
In addition to these choices, I also included the value of the Beximco cash and stock dividend in my result for this year. The stock is trading ex-div for both, but my broker doesn’t recognize the dividends. Including these dividends increased my performance with 84bps.
As you can see in the above graph almost everything I owned managed to end up in positive territory this year with the exception of Conduril. I’m not quite sure why the stock has been performing so poorly. The company is expected to receive a large amount of cash from Angola this year, and the recovery in oil prices should also be a positive for business in Angola. Because I think the stock is now very cheap again I have added to my position multiple times last year around current prices, and this morning I bought a few hundred shares more.
There is also a big loser hiding in the special situations basket. I had a position in Aixtron, a German company (with an US subsidiary) that was being acquired by a Chinese company, but unfortunately the deal was blocked by Obama because of national security concerns.
Beximco Pharmaceuticals has been by far the best performer of the year. The business itself managed to generate some nice numbers, but most importantly the discount between the shares in Bangladesh and the GDRs that trade in London has shrunk significantly. At the moment the discount is still sizable at roughly 35%, but that’s a lot less than the 60% earlier this year. I sold some shares of the company in the past months, but because of its strong performance it remains one of my biggest positions.
If you remember my previous post with an overview of my portfolio you will recognize that my current portfolio composition is fairly typical. I have a decent chuck of money allocated to special situations, and there is plenty of cash available for new positions. I’ve got some promising ideas already, so I expect that I’ll be able to spend some of the cash soon :).
Author is long everything in the portfolio overview