The performance review of 2023 is still featured on the blog’s front page, yet it’s already time to reflect on 2024. Over the past year, global stock markets marched relentlessly higher, driven by tech and AI stocks in the U.S. Despite having no exposure to AI, the portfolio not only kept pace with the MSCI All Country World Index but managed to outperform it once again. As the track record continues to grow, the power of compounding has become increasingly evident. While 2024’s performance was not significantly better than average, the absolute return was higher than the combined returns of the blog’s first six years – and those years included some of my best results! As investors, we are well-acquainted with the principles of compounding and exponential growth, yet it’s still remarkable to witness them in action.

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

As is visible in the performance attribution graph below, special situations were a driving force behind the performance of the portfolio. This isn’t a unique phenomenon, but this year the impact was even bigger than normal. One trade was especially successful, contributing 676bps to the overal performance. The impact of currency movements was also quite meaningful this year with a 341bps contribution, and in reality that number should be higher. I hold my investments in multiple brokerage accounts, and Interactive Brokers is the only broker that provides usable reports to determine the impact of currency movements. As a result, some positions include currency gains, while others don’t. And then there are some brokers that have such horrible reporting that contributing performance to individual positions is not feasible. That’s why last year I introduced the “misc. positions” item to deal with that. It is not a sneaky way to hide positions I’d prefer not to disclose, although I can’t guarantee I won’t use it for that purpose in the future.

Another name at the top of the chart is United Development Funding IV. I’ve written about this fund before, and its story is far too complex to summarize briefly. However, with four former executives in jail and the SEC having revoked the stock’s registration statement, it’s safe to say this investment comes with some hair on it. Last year, NexPoint Advisors ran a proxy campaign to replace the current trustees, who remain tied to the jailed executives. Just before the first annual meeting in a decade, the company announced a deal to be acquired by Ready Capital (NYSE:RC) for up to $5.89 per share. While the timing of this deal raises questions – and it’s likely more favorable to insiders than it should – it still represents a substantial improvement over the previous status quo. Before the deal’s announcement, the stock last traded at $2.22 on ctt-auctions.com. Its most recent trade was at $3.75, and if the merger with Ready Capital closes
in 2025, there could be additional upside.

Although the final chapter of United Development Funding IV story has yet to be written, this appears to be another case of the old adage: good things come to those who buy (very) cheap. I began buying the stock in 2019 and 2020. Back then, I estimated the book value to be around $13 per share, though with considerable uncertainty since the company hadn’t published financials since 2015. Since my initial investment, the fund has distributed $1.50/share in dividends, reducing my cost basis to almost nothing. While the deal with Ready Capital values the fund at a steep discount to its current book value of $9.47/share, it’s clear this will result in a more than satisfactory internal rate of return.

I hope my readers had a good 2024 as well, and I would like to wish everybody a happy, healthy and prosperous 2025!

Disclosure

Author is long most of the stuff mentioned in the performance attribution graph