Half-year portfolio review, 2019 edition

With the first half of the year behind us it’s once again time for the obligatory performance review. Absolute performance was quite satisfactory with a solid double digit return, but simultaneously I’m underperforming the MSCI ACWI for the first time since starting this blog. With my focus on special situations it’s a result that you would expect since these often offer a more or less fixed return, making it tough to keep-up with a rapidly rising stock market. Since I’m not too far behind I’m hopeful that I’ll be able to catch up in the second half of the year. There are a couple of special situations that are on the verge of being completed that could meaningfully boost my performance. But even if I don’t catch up, I can’t really complain!

Year Return* Benchmark** Difference
2012 18.44% 14.34% 4.10%
2013 53.38% 17.49% 35.89%
2014 30.11% 18.61% 11.50%
2015 24.23% 8.76% 15.47%
2016 64.97% 11.09% 53.88%
2017 29.04% 8.89% 20.15%
2018 13.07% -4.85% 17.92%
2019-H1 14.51% 16.67% -2.16%
Cumulative 709.22% 132.71% 576.51%
CAGR 32.15% 11.92% 20.23%

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

As you can see below, the majority of the performance is driven by the special situations while both HemaCare and Viemed Healthcare were also significant contributors. The graph looks a bit like the one of 2018, and as a matter of fact, the top four is the same as at the end of 2018 (but the order is slightly different). The performance of the special situations bucket got a large boost when the situation around the Sorrento Tech liquidation payment got resolved earlier this year (+158bps). To some extent this is a bit of an artificial gain because the position was marked at zero by my broker last year, and most of it is just a reversal. But thanks to this, the special situations bucket is managing to keep up with the overall stock market reasonably well.

The performance of my long-term value stocks was a bit more mixed. There were unfortunately quite a number of losing positions which is not a great result in a period when everything seems to be going up. Luckily, not every holding was a laggard. Both Argo Group and Goodheart-Willcox launched big tender offers to buy back shares at a significant premium. I sold my entire stake in Argo Group for a decent profit, while I decided to hold on to all my Goodheart-Willcox shares. Based on the information provided in the tender offer document itself (and my own valuation) the company seems to be worth more, and so far the market seems to be agreeing with that assessment since the stock hasn’t traded down below the price of the tender offer. But liquidity is, especially now, after the tender offer, almost non-existent.

The tender offer was for $150/share while the shares were valued at $168/share in an external appraisal, and that number included both a 11.1% discount for a lack of control and a 15% discount for a lack of marketability.  Without these discounts the value per share would rise to $237. With Argo Group I was happy to sort of meet management in the middle and split the discount, but because I have a lot less concerns about the corporate governance of Goodheart-Willcox I’m more inclined to hold it if there is still a significant discount to “fair” value. Additionally, the management projections for revenue and earnings that were included in the tender offer documents looked pretty optimistic as well. I usually put very little value in these kind of projections, but it’s another data point that suggest that the stock is still undervalued at the current price. I guess we’ll see how it will play out.


Author is long or has been long all the stocks mentioned in this post

20 thoughts on “Half-year portfolio review, 2019 edition

    1. Alpha Vulture Post author

      Hasn’t done great this year obviously, but I’m still very happy with the 50% discount that you get by buying it in London :). As long as that discount is there I’ll probably be in this stock.

      1. pietje

        Discount is around a three year low, GDR’s trading at < 6x earnings and ~0.55x book. Not as crazy as in your initial blog post but still cheap. The company is growing revenue at a nice pace and ROE seems to be trending higher as well as they grow. Would be nice if they start generating a bit of cashflow but still, I like it at the moment and am considering buying a bit more if this situation persists.

        1. NeverLoseMoney

          I saw a review on BarelKarsan.com about the book Bottle of Lies. Apparently it exposes some troubling practices by overseas generic drug manufacturers. I don’t think this would be a huge concern for Beximco currently, as exports are still quite a small part of the overall revenues. They are looking to grow US exports substantially though.

          I’ve looked a bit into their American partner Bayshore, but haven’t yet found anything that looked troubling. Beximco and Bayshore (and its CEO) are not mentioned by name in the book (I did a search). I haven’t read the book yet, but it’s on my to-read list.

          Perhaps a reason for the growing discount? If there are more, or larger, GDR holders who are uncomfortable about this than in Bangladesh it could widen the discount. Some of the press releases announcing their first US exports had the effect of narrowing the discount, if I remember correctly.

        2. pietje

          Shouldn’t have posted that. GDR’s now trading 20% higher and of course my bid didn’t get filled ..

  1. Pogonific

    Sorry for being stupid but is the H1 number an annualised return rate or absolute? Either way, well done – nothing to be ashamed of here!

  2. Gianluca

    Congratulations for your excellent performance! 🙂

    May I ask if in your special situations portfolio you hedge foreign currency risk? Especially when the spreads are tight, FX movements threaten to eat up all the returns at times.

    Thanks! 😉

    1. Alpha Vulture Post author

      Thanks, and no, I basically never hedge currency risk. Sure, if you are unlucky a lot of your potential return can disappear, but it it can go in the opposite direction too. And usually the volatility of the major currency pairs isn’t that crazy I think. And given that hedging isn’t free, I prefer a little bit of random noise.

  3. ben

    Dear Alpha Vulture,

    Can you share or direct me to post of how do you find the SS or Liquidations? what sites / new you follow?

    as well, how much your exposure per situation?



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