With the first half of 2017 behind us it is once again time for the obligatory performance review. As can be seen in the table below my performance was more than satisfactory. While the benchmark eked out a small gain of 3.09% my portfolio returned almost seven times as much. I think by now I can be pretty confident that I have some edge on the market, although it remains to be seen how big it is. In almost every past performance review I have written that I don’t expect that I’ll be able to continue to repeat these returns going forward, and I still think that is the case. But who knows. Maybe, just maybe, I can keep this going for a couple of more years.
| Year | Return* | Benchmark** | Difference |
|---|---|---|---|
| 2012 | 18.53% | 14.34% | 4.19% |
| 2013 | 53.04% | 17.49% | 35.55% |
| 2014 | 27.72% | 18.61% | 9.11% |
| 2015 | 20.23% | 8.76% | 11.47% |
| 2016 | 43.58% | 11.09% | 32.49% |
| 2017-H1 | 20.46% | 3.09% | 17.37% |
| Cumulative | 381.77% | 98.46% | 283.31% |
| CAGR | 33.09% | 13.27% | 19.82% |
* 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
While my result for the first half of 2017 is pretty good I’m actually not that happy about it. I have reflected a bit upon why that is the case, and I think it’s because the good performance is mainly driven by just a couple of lucky outliers while I also had plenty of idea’s this year that didn’t work out or had a lot more potential than what I realized. It’s not very visible in the graph below because most of the variance is hidden in the “special situations” bucket, but Sapec is for example responsible for 795bps of the performance while “undisclosed merger A” added another 454bps. While Sapec was a great idea, the fact that I was able to buy a large position at almost the low of the day after the going private transaction was announced was just luck. That luck is partially being offset by other trades such as Destination Maternity (my biggest loser with a minus 172bps contribution) while “undisclosed merger B and C” subtracted respectively 152bps and 52bps from the result. I’m often attracted to deals where it is hard or impossible to hedge out company specific risk, and as a result I will have to accept some variance.
Also very visible is that in the first half of this year my portfolio faced a large headwind from currency movements, mainly caused by the US dollar losing value versus the euro. In previous years this movement was often in the other direction, and I expect that in the long run these gains and losses will roughly even out. The MSCI ACWI benchmark faced a similar currency headwind. It was up 8.95% in local currency, but just 3.09% in euro’s. While I don’t really own any stocks that are part of that index this is one of the reasons why it’s still a useful comparison.
As you can see my portfolio is in broad strokes looking like it usually does with a large allocation to various special situations complemented with a few dozen value stocks. New is the large position labeled “various receivables”. I often participate in special situations that result in a cash outflow while my broker doesn’t recognize the asset that I receive. If the cash outflow is small relative to my portfolio I usually just value these assets at zero, but for larger transactions it would skew my results too much. A large part of these receivables are the tax assets created in the Sapec transaction, but they also contain the DNIB Unwind (liquidation trust) shares at cost and the remaining Primo Water shares held in escrow at market value.
Another change that warrants a mention is that I finally sold my position in Berkshire Hathaway this year. I bought my first shares in 2010, and since then the stock has performed pretty well. At the same time, I don’t expect miracles from it and it’s probably going to perform roughly in line with the US stock market. Since I had more ideas than money on multiple occasions this year I thought it was a good time to say goodbye to this stock.
Disclosure
Author is long everything in the portfolio overview
Congrats! Keep up the good work.
Thanks 🙂
Very well done. You’re notching up some incredible performance.
Thanks 🙂
Receivables include 15% of Sapec dividend or the full 30%?
It’s based on the closing market price of Sapec before it went ex-dividend, so that would be a little bit more then 15%.
(Based on size I’d say 15%). Nice results anyway, afraid it’s gonna be another year of underperformance ..
Nice man. I’ve done 19.25% in the past 6 months. I feel good about it but I owned a lot of cheap banks that benefitted from the Trump trade so I can’t claim to be some kind of guru. Most of my net nets have completely stagnated this year.
Still not too bad… I also had a bit exposure to that through some special situations 🙂
Sorry for a slightly off topic question but I’m going over some of your past merger arb writeups and am I correct in observing that you tend not to hedge the acquirer leg of the trade? It seems like even when it’s a stock deal you tend to simply go long the target. Is that correct or have I totally missed old writeups in which you shorted the acquirer?
I guess I’m just looking at some situations with a combination of stock and cash payout in which the exact percentage of each will be determined upon completion of the deal and I just have no idea how I would go abou hedging such a situation. Thanks!
Sure, see for example ATLS or PZG. If hedging is cheap and feasible I do it.
And what do you usually do when the exchange ratio isn’t fixed?
Give me an example of a merger where that is a problem?
Congrats on your continued strong performance.
Thanks 🙂
Goor results, Alpha, congrats.
It looks like size of positions plays a good role in your investment decisions (although as I always tell you, it would be nice if special situations were disclosed because they are such a big part of the pie).
I like your allocation to Italian REITs and I would like to study them again.
Can you just let us know where you see the biggest upside?
Thanks 🙂 And don’t have a very strong opinion on what Italian REITs are better than others, but if I would have to pick I would probably go for Fondo Alpha. Very large discount to NAV, almost zero debt and a reasonable amount of income.
Congrats AV, well done!
Thanks 🙂
Any thoughts on DEST at this point, or did you sell after the news?
Still holding. Besides the change in price I don’t think anything really has changed. Spread is still the same, and still think this deal will be completed.
Your blog is great, nice performance as well. Thanks!
Thanks 🙂
You win some, you lose some
http://www.prnewswire.com/news-releases/destination-maternity-and-orchestra-premaman-announce-termination-of-merger-300495680.html
Yes, looks like the stock is going to increase its lead for the title of “biggest loser of 2017″…
Congratulations Alpha Vulture on your continued stellar performance.
Given the cancellation of the DEST deal and DEST now trading at 1.54, do you have any thoughts on how to exit the position? TY.
Not really, I don’t have a crystal ball.