Friday, April 25, 2014


PICK. That's a New York Stock Exchange ticker symbol for iShares Exchange Traded Fund (ETF) "MSCI Global Metals & Mining Producers". It's also our latest position.

Our exposure to "Mining & Exploration" sector - one of the sectors we focus on - has been very low for quite some time (very low as in 1,4% in last portfolio update). I have been looking at various corporations for direct investment, but decided instead to go with an ETF.

After some research of various options, I homed in on the PICK. The fund invests in all the big names in mining space like BHP Billiton, RIO Tinto, Glencore Xtrata, Anglo American, "Freeport-McMoran Copper and Gold" and VALE. All in all, there seems to be 246 holdings as of today. The index followed by the fund is "MSCI ACWI Select Metals & Mining Producers Ex Gold & Silver Investable Market Index" (means it does not invest in companies that are mainly Gold and Silver producers).

158 million USD in net assets is a decent amount of money and allows the funds to have reasonable 0,39% net expence ratio. The trailing 12 month yield is 3,52%. iShares gives also P/E figure of 21,07 and P/B of 1,72 for this fund. For some reason Yahoo Finance puts TTM P/E at 12. on the other hand, shows very reasonable forward P/E figures for companies that are among the top holdings and listed in NYSE:
  • VALE (VALE) 7,6
  • RIO Tinto (RIO) 9,6
  • Freeport-McMoran Copper and Gold (FCX) 11,0
  • BHP Billiton (BHP) 12,7

Saturday, March 15, 2014

Tripled position on Fred Olsen Energy

We have been holding Fred Olsen Energy (Oslo Stock exchange, Norway: FOE) for many years now. See my previous articles if not familiar with the Company:
I recently decided to triple our position in the company, because the stock came under 200 NOK making expected dividend yield for 2014 over 10%. I had cash to deploy and looking at our overall portfolio this sector and this company seemed like the logical place to put cash in at this point of time.

They have paid steady stream of base 10 NOK dividend for years. On top of that there has been an extraordinary dividend in most years between 2007 and 2013.

2007  NOK 10 per share
2008  NOK 25 per share
2009  NOK 25 per share
2010  NOK 10 per share 
2011  NOK 20 per share
2012  NOK 20 per share 
2013  NOK 20 per share

According to 4Q 2013 presentation: "The Board of Directors will propose to the AGM in May 2014 to distribute NOK 10 as ordinary dividend and NOK 10 as extraordinary dividend".

My logic here is quite simple:
  • I believe there is significant margin of safety long term (as in 5-10 years) when buying the company below 200 NOK.
  • Yield is very attractive for 2014 (and I believe beyond)
  • Future upside potential via new builds to the ultra deep water segment
    • Bolette Dolphin: delivery date Feb 2014 (new build ultra deepwater drillship). It has four-year contract with Anadarko for international operations.
    • Bollsta Dolphin: Delivery 3Q 2015 (new build ultra deepwater semi-submersible). It has five-year contract with Chevron for operations West of Shetland in the UK sector.
Source of information:

Author is long Fred Olsen Energy at the time of writing.

Sunday, February 16, 2014


Global megatrends should be taken into account in building a stocks portfolio for long term (next 10-20 years). I have already taken many such megatrends into account in my portfolio. These include rise of developing countries (and China in particular), resource scarcity, explosion of data (both in terms of network traffic and stored data), demographic shift, public debt explosion in western countries and climate change.

Megatrends are linked. For example, rise of developing countries combined with urbanization contribute both to coming resource scarcity. I recently finally completed reading an excellent book about this (Winner Take All by Dambisa Moyo).

On top of the ones I already mentioned here are a few more that I see important (check more via each link):
  • Rise of the individual: KPMG: "Advances in global education, health and technology have helped empower individuals like never before, leading to increased demands for transparency and participation in government and public decision- making."
  • Risk for serious instabilities as identified by Business Insider
    • The Crisis-Prone Global Economy
    • The Governance Gap
    • Potential For Increased Conflict
    • Wider Spread Of Regional Instability
If you browse through the links you will see yourself how linked the megatrends indeed are. As an investor with "ultralong" time horizon I certainly hope the projections about instabilities - not to talk about outright war - do not come true. However, as always, it's better to prepare for worst while hoping the best. In portfolio terms, I would say that means stable high quality dividend paying companies in addition to more volatile companies that are exposed resource and technology sectors.

Sunday, January 12, 2014

Portfolio update: Allocations and Top 5 positions

Our portfolio is currently allocated as follows:

Stocks 96,8%
Gold 2,5%
Cash 0,7%

No bonds.
I simply substitute bonds with quality dividend payers in our portfolio.

Geographical Allocation (stocks):

Europe 57,7%
North America 29,5%
Emerging markets 12,7%

Actually, place of incorporation is pretty meaningless for most corporations we have invested in. Most operate and sell globally.

Sector Allocation (stocks):

Information Technology 34,1%
Other 30,6%
Health Care 11,4%
Communication Service Providers 9,5%
Low Emission Power Generation 6,5%
Oil & Gas Production 6,5%
Mining & Exploration 1,4%

Top 5 positions:

Company/ETF (sector) allocation%

Western Digital (IT) 9,0%
Nokia (IT) 8,6%
UPM (Other) 7,9%
Orion (Health Care) 7,4%
Vanguard MSCI Emerging Markets ETF (Other) 6,7%

Monday, January 6, 2014

Valmet demerger from Metso

We have a new position (Valmet Corporation) since Metso Corporation was split in to two publicly listed limited companies. Both are listed in NASDAQ OMX Helsinki.

Valmet Corporation is a leading global developer and supplier of services and technologies for the pulp, paper and energy industries. Mission of the company is " Converting renewable resources into sustainable results". They have over 200 years of industrial history. 1999 Valmet and Rauma corporations were merged to form Metso and now Valmet a separate company again through the demerger.

Demerger was driven by Swedish investor Christer Gardell who has been on board of directors of Metso since 2006. His investment corporation Cevian Capital is biggest shareholder in both Metso and Valmet with close to 14% share of both. Cevian Capital is known for active ownership investment strategy. Finnish state owns approximately 11% of both corporations through holding company Solidium. There are no other significant shareholders since even the major Finnish pension funds don't own more than 1-3% of the companies.

Valmet’s net sales in 2012 were approximately EUR 3 billion. Profitability of Valmet is much poorer than that of Metso. EBITA before non-recurring items was EUR 192 million in 2012. The net sales split in 2012 was roughly as follows:
  • Pulp and Energy 39%
  • Services 34%
  • Paper 27%
Valmet’s services cover everything from maintenance outsourcing to mill and plant improvements and spare parts.  

The net sales split by geographical area:
  • Europe, middle-east and africa 40%
  • Asia/Pacific (incl. China) 24%
  • North America 19%
  • South and Central Amercia 17%
Valmet is established market leader in all markets served.  The company faces limited growth opportunities in all of its markets served. It seeks long term growth potential in market for biomass conversion technologies.

Nordnet wrote about the demerger in their morning briefing on 3rd of January 2014. They have "reduce" recommendation for both Valmet and Metso. At 6,65 euros per share for Valmet they estimated
  • P/S: 0,4
  • P/B: 1,2
  • 2014: P/E 20; EV/EBITDA 6,4
  • 2015: P/E 15 EV/EBITDA 5,4
They think the valuation is challenging short term due to market weakness and fairly high forward P/E valuations. For Metso they estimated:
  • P/E 2014: 14-15
  • EV/EBITDA: below 10
Nordnet stated valuation to be fair, but challenging due to weakness and unclear trajectory of the mining industry, which matters great deal to the new Metso. 

I don't yet have strong opinion on Valmet. I started position in Metso originally mostly because of the businesses that are now part of the "new" Metso. Since these types of transactions usually unlock hidden value, I will give time - maybe 1 year - for Valmet and then see whether it's good idea or not to keep it in our portfolio.

The author holds shares of both Metso and Valmet.

Sources (beyond linked ones):