The first half of 2020 was without a doubt the most action packed start of any year since I started this blog, but you would not know it if you would look at the table below. After hitting a low somewhere in March, both my portfolio and the global stock market staged a remarkable recovery, and I’m back in positive territory while the stock market isn’t that far behind. During the depths of the coronacrisis I was pleased with how my portfolio managed to withstand the carnage. At the lowest point I was down approximately 13% for the year while the MSCI All Country World Index almost hit the 30% mark. I have written many times that I expect to do relative well in periods of market stress, and it’s good to see that that was not just wishful thinking. March 2020 was a portfolio stress test unlike anything I have had experienced before.
* 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
While my portfolio managed to survive the crisis (so far) I have to admit that I didn’t really do that much to capitalize on the opportunities that (in hindsight) were available. I was a cautious buyer because I thought that the economic impact of the coronacrisis could be severe and it would be hard to predict how it would impact various companies. To be honest, that’s probably still true, even though it doesn’t look like it anymore.
But I couldn’t resist picking up some shares at the depth of the crisis, and as you can see in the graph below, especially the special situations bucket performed admirably. Mergers were trading at historic large spreads, and while plenty of deals got cancelled or renegotiated most worked out quite satisfactory in the end. The only stock that caught me with my pants down was Stein Mart (NASDAQ:SMRT). I had not read the fine print of the merger agreement sufficiently careful, otherwise I would have realized earlier that drawing down the revolver too far would cause a material adverse change, giving the buyer an easy out.
As you can see, most of my portfolio is still down for the year. The two main exceptions are Viemed Healthcare and Xpel, two stocks that I would classify as reasonable priced growth. The sea of red below consists mainly of classic value stocks, and it is not a coincidence those have all performed poorly. While the stocks I own are in general too small to be part of any index, it is quite remarkable how much value stocks are underperforming this year. The Vanguard Value ETF is for example down -15.55% year to date while their growth ETF is up 11.44%.
Does that makes sense? I really don’t know. You could make an argument about how lower interest rates make companies with their value further out in the future more valuable, or maybe the coronacrisis will be the final nail in the coffin for struggling companies. But as long as I continue to buy cheap companies with a solid balance sheet I think things should work out in the end. We will see what the second half of 2020 is going to bring!
Author has a position in most of the stocks mentioned in the overview