2017 end-of-year portfolio review

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.

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 30.12% 8.89% 21.23%
Cumulative 420.39% 109.63% 310.76%
CAGR 31.64% 13.13% 18.51%

* 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 alsoΒ 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).Β 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

40 thoughts on “2017 end-of-year portfolio review

    1. Alpha Vulture Post author

      Some feedback on your write-up on Aviaam: I don’t like the use of some semi-random 35% discount to estimate fair value. If I give you a dollar and you invest it in something in Kazachstan it isn’t suddenly worth just $0.65. Otherwise no-one would ever invest anything in a developing/frontier country. This comment is especially relevant since a large part of the companies assets consist of cash. Of course, because of the risks present you would demand a higher expected return from your assets, but that’s something that you are hopefully also getting when you are buying them.

  1. MP

    Perhaps this has been asked and answered before, but… where do you get your ideas? Particularly special situation stocks that are time sensitive?


      1. Drew Newsom

        Congratulations! Thank you for the blog. It is great to see you do well.

        I was wondering which filings (and on what sites) you scan in general and for special situations. Any helpful tips on your process would be greatly appreciated?

        Best of luck in 2018.

  2. Michael

    How can the portfolio return be 30% if the best performing group made only 22%. I guess this is the market excess return.

    There is also to consider that all years cover a bull market. It would be interesting to see how the portfolio performs in a bear market. Considering the worldwide high valuations, a bear market is not unlikely.

    1. Alpha Vulture Post author

      I think you misunderstand how the performance attribution graph works. All the returns summed together gets you to the total return of the year. It’s not how the individual position performed, only how much they contributed to the overall result (would be pretty unlikely to have a whole portfolio of stocks that are all basically flat for the year :P)

  3. Pogonific

    Thanks AV and congrats on amazing results – wishing you a repeat in 2018!

    I wonder if you’d be happy to share rough portfolio size? Is it 10s, 100s, or 1,000,000s? And roughly what % of a full time job’s worth of time have you spent doing this this year?

    Thanks again and good luck.

    1. Alpha Vulture Post author

      Thanks, I’m not counting on it, but would be nice :). I don’t know exactly how much time I spend, but perhaps something like 50% of a full time job. Portfolio size: big enough to do this “full” time πŸ˜‰

      1. me

        I was holding it and sold out at 2.75$ due to the dividend stop and recent run. Why didn’t you sell all of it at ~3.5$? Its quarterly report was good, but I wouldn’t justify a 3.5-3.6$ per share as it was only for a brief time.
        Any thoughts?

          1. me

            Thanks. How do you find the dividend stop? Any thoughts why would the company do that while it is hoarding cash?

  4. Gianluca

    Hi, AV. Congratulations for your great performance! Wish you another great year for 2018.

    I was wondering if you could share some info on the special situations basket. In particular:

    1. Is merger arb the most common special situation you do?
    2. Do you usually use leverage?
    3. How many position do you hold on average in a year in this basket?

    Thank yoh very much!

      1. Alessio

        Thank you for sharing your ideas and thank you for your portfolio πŸ˜‰
        Can you provide the all type of special situalion as well as merger arb?

  5. Michael

    I could not find the Japanese stock basket in your current Portfolio. Only the Japanese stock 7399 is in your portfolio. Is the portfolio correct?

    Recently I have seen a very obscure stock called Premier Exhibition. The business has probably a value of cero. In addition, the company is liquidated. Market cap is around USD 30 Mio. The intersting point is that the company owns 5500 artifacts from the Titanic and these artifacts were valued for 200 Mio. or so. The company could therefore be extremely undervalued.
    Could this be an interesting bet?

  6. Harry

    Hi AV,

    I sent your a message about the tender offer of AviaAM Leasing. Would like to hear your thoughts about this offer. Thank you so much!


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