First of all, I wish you all a Happy New Year!
In 2015, my portfolio underperformed the benchmark. The portfolio gained 8.8% while the benchmark soared by 19.9%:
The first major reason for the divergence was the portfolio’s low allocation to euro zone small cap equities which performed exceptionally well in 2015. While my benchmark has a weighting of 70% towards this asset class, I only invested 35% of my portfolio in the euro zone public equity markets. In addition, some of my European portfolio components like Olympic Entertainment Group, Francotyp Postalia and Bellevue Group lagged the benchmark in 2015 although their operations performed well. I expect the gap between market price and intrinsic value for these companies to be recognized by market participants soon (hopefully in 2016).
The second major reason for the underperformance was a relatively high average cash holding of 28% in 2015.
As of yearend 2015 there are three investments including Dundee Corp., Passat and AG Bad Neuenahr where the realisation of a permanent loss of capital seems to be a probable outcome:
Dundee Corp. is a holding company with participations in hard assets (e.g. commodities, agriculture and real estate) many of them located in emerging markets or commodity rich countries like Canada. Not the place to be right now. The share price lost 64% of its value in 2015. The company is currently in the process of enhancing its capital structure by extending the maturity of one of their three preference shares series outstanding. If successful, Dundee will have outstanding preferred shares with a notional of CAD 237 m and an average weighted coupon of 6.3%. CAD 107 m will be redeemable in 2019 with the rest being not redeemable by shareholders. In addition to that, the company has recourse debt outstanding of CAD 92 m. The credit line will have to be renewed at the end of 2016. However, with
assets equity valued at CAD 1.2 bn, banks should be willing to extend the credit line. In a worst case scenario Dundee would have to sell some of their public holdings. The market is currently ascribing low valuations to Dundee’s holdings. This might lead to positive surprises in 2016 and 2017. For instance, according to this article TauRx, a biotech firm focusing on the development of Alzheimer treatments is preparing a listing on the NASDAQ. As of Q3 2015 Dundee was holding roughly 5% in TauRx valued at CAD 68 m (after another round of financing in October 2015 the share might have been slightly diluted). Based on the article, in the process of an IPO the company might be given a valuation of USD 15 bn. For Dundee this translates in roughly CAD 1.0 bn or more than 4 times Dundee’s market cap at yearend 2015. Whether this will come true is highly uncertain at the moment, but it adds to my view that a number of Dundee’s holdings might create substantial value over the next years.
The second permanent detractor might be AG Bad Neuenahr. This is a tiny German company and I have not so far released an investment case on that one. Although the investment weighted on this year’s performance, it has been a very good learning experience for me. I will summarize the lessons learned from this adventure in a write up once the outcome of this investment will be more certain which I expect to be the case at yearend 2016.
Passat, a French specialty retailer, was the first investment I presented on this blog more than two years ago. My thesis was flawed as I just extrapolated historic numbers and did not account for the problems the company was facing namely declining consumer spending in France and Southern Europe, an increase in competition and a low level of transparency with regard to investor relations. In addition to that, the company is now facing a strong USD which might increase procurement costs as many of the goods sold come from China. The reason why I am still holding on to this company is simply due to valuation. With a market cap of EUR 19 m, EUR 11 m of net cash and revenues of EUR 50 m I am wondering what can still go wrong?
Throughout the year, I allocated roughly 10% of the portfolio to publicly listed Italian real estate funds which are currently in the process of liquidating their portfolios and distributing net proceeds to shareholders. These funds contributed 2.6% to portfolio performance and I expect them to continue to do well in 2016.
The following table provides the attribution to annual performance of each investment:
In terms of portfolio management I sold out 9 investments throughout the year. With the exception of Microwave Vision (Total Return: -19.7%) and RealDolmen (-1.5%), completed investments showed a satisfying outcome with Miba (+64.9%) and Lenzing (+59.6%) being the top realisations.
During the same period I added 12 new investments to the portfolio. As of Q4 2015 the portfolio counts 25 names (22 if the Italian funds are considered as one basket). This is fine for me. However, I might increase the average weighting of each investment going forward which is currently at 3% .
The following table provides an overview of Q4 2015 portfolio transactions:
The content contained on this site represents only the opinions of its author(s). I may hold a position in securities mentioned on this site. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. As always please do your own research!