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):

Friday, January 3, 2014

Portfolio performance 2009-2013

Happy New Year 2014!

It's time to compare the performance of our portfolio in the year 2013 against index investing.

As regular readers know by now, I have chosen MSCI all country world (ACWI) index as our benchmark index. In 2012 we significantly underperformed, but last year we took back the difference and are leading our benchmark investment by a small difference.

Our performance during 2009-2013 has been as follows:

Our portfolio is currently defensive (less risky) and less volatile than the ACWI index. Therefore, it has underperformed in bull market and overperformed in bear market - until 2013. The explanation is our largest position & turnaround bet - Nokia, which gave quite a boost to the overall portfolio by doubling.

Also, Western Digital - which also happens to be one of our largest holdings - rose 100% in dollar terms. Apart from UPM, which is luckily yet another large position, I don't recall above average returns this year. However, these three were enough to boost performance from below average to above average in 2013. Apart from Nokia I haven't been trimming down the winners. Nokia just grew too big within the porfolio. I used the opportunity to offset losses and to grow other promising positions.

Our benchmark index 2009-2013 (based on MSCI All Country World Index; Net; Euros)

I have not calculated our performance during 2007-2008 because we were off the market. During that time and also before that our benchmark index would have been different because the investment objective was different and risk level was much lower.

About the "benchmark investment"

I have chosen to construct my own imaginary benchmark index fund out of MSCI ACWI index instead of choosing one particular index fund that tracks the index. The main reason for this is that I would never invest all our money in any particular fund. I would rather choose several funds managed by several companies that as a whole would track the index close enough. My estimate for average cost level for the benchmark investment is 0.5% per transaction and 0.5% per year.

The index data itself is available via MSCI Barra web site as excel-file at least at the time of writing this post. I use a version of ACWI index which has large and mid cap companies in it. I use it with the following parameters:
- EUR (as in euros)
- Daily (as in daily quotations of the index)
- “Net” (as in “With Net Dividends” that takes into account taxes that you would have to pay before you can reinvest back into the fund. “Gross” option reinvests dividends wholly.)

The benchmark investment is always fully invested into the passive index. Starting balance was invested at end of 2008 to the index. By dividing the money with the value of the index, you get “shares in index”.

About calculating the yearly returns

The yearly return of the index and the "benchmark investment" will be different due to addition of money into the brokerage accounts during the year. The yearly returns are simply calculated as
[balance at end of year N] - [(balance at end of year N-1) + (additions to brokerage accounts during the year N)] / [(balance at end of year N-1) + (additions to brokerage accounts during the year N)]