Portfolio performance 2009-2015

It's time to compare the performance of our portfolio in the year 2015 against passive index investing.

Our "benchmark investment" is an imaginary passive ETF that closely tracks the performance of MSCI all country world (ACWI) index in euros.

This time I knew even before calculations that we would loose to the index.

The only question was how much.

Our performance during 2009-2015 has been as follows:

The result for 2015 wasn't as bad as I feared, but it sure is disappointing to loose with such wide margin given both US and Finnish markets seemed to beat the ACWI index (most of our positions are in these markets). Clearly worst year yet in terms of difference to benchmark. Second worst in absolute performance.

Euro continued it's decline in 2015 from 1,2096 USD to 1,0858 USD (-10,23%). A bit smaller decline than 2014, but sizable nevertheless. Our portfolio is much more tilted to Europe and Eurozone than the ACWI index where U.S dollar exposure is currently 53% (source: XTF). This was one clear reason for loosing to the benchmark. However, clearly biggest reason is poor performance of many of our positions. Year 2015 continued to be bad for oil and mining sectors overall.

Cumulative gains of our portfolio (blue line) vs. benchmark investment (red line). 31.12.2008 = 100.

The difference to benchmark can be put better to perspective in a chart. It's actually amazing how closely we overall track the benchmark given that our portfolio has very different region & sector allocations compared to ACWI index.

Continuing with positive note, readers familiar with passive index investing know that most professional (very well paid!!) money managers and actively managed funds loose to their benchmark index over time. A recent CNCB article regarding active vs. passive investing gave interesting data points to think about:

"Morningstar data show that this year, through Oct. 31, roughly 58.6 percent of actively managed funds have failed to beat their benchmarks. And over the last 10 years, 73 percent of actively managed funds have fallen short."

While I use many passively managed ETFs, most of our positions are in individual companies. This combined with rather small yearly changes to the portfolio makes our portfolio kind of "passive-active" blend.

It would be plain dull to have fully passive portfolio (even though so far we would have been better served with that kind).

 

 Our benchmark index 2009-2015 (based on data from MSCI All Country World Index; Net; Euros)

If you want to know more about our "bechmark investment" and the way above comparisons are calculated, please read the latter part of portfolio performance update from 2014.

Helsinki Top 20

I use a service provided by Valuatum.com via Pörssisäätiö to screen stocks listed in NASDAQ OMX Helsinki. I use the screen periodically to check where our holdings stand relative to other companies listed in Helsinki. Naturally I am also continuously screening for new investment ideas.

The results of my personalized screen are disclosed below. I use different criteria and weights than the default "Liisa's list" that is featured in the pages of Pörssisäätiö. Often I check both lists to get two different angles.

Our positions are marked with prefix ">".

Rank Company (Score)
----------------------------------------
#1 United Bankers (3,3)
#2 Orava Asuntorahasto (3,2)
#3 Taaleritehdas (3,1)
#4 eQ (2,6)
#5 Technopolis (2,5)
>#6 Citycon (2,4)
>#7 TeliaSonera (2,4)
#8 Sponda (2,3)
#9 Revenio Group (2,2)
#10 Raute (2,1)
#11 Okmetic (2,1)
#12 Ponsse (2,1)
#13 Keskisuomalainen (2,0)
#14 Orion (2,0)
#15 Sampo (1,9)
#16 Aspo (1,9)
>#17 Metso (1,9)
>#18 Siili Solutions (1,9)
#19 Restamax (1,8)
#20 Yleiselektroniikka (1,8)

...

>#27 UPM (1,6)
>#28 Fortum (1,6)
>#80 Nokia (0,9)

...

Average Score of all companies in the research database: 1,3
Average Score of our positions: 1,8

Median Score 1,2
Our positions that have higher score than median: 6 out of 7

Worst Score 0,2 (#108 Talenom)


Parameters used in screen (weight):
-------------------------------------------
 P/B estimate 2014 (13%)
 P/E estimate 2014, 2015 (8%, 10%)
 Dividend yield estimate 2014, 2015 (8%, 8%)
 ROA estimate 2014 (10%)
 ROI estimated 3 year average 2012-2014 (8%)
 ROE estimated 3 year average 2013-2015 (8%)
 Turnover estimated increase 2013-2015 (8%)
 Net Profit estimated increase in 2013-2015 (8%)
 Gross Margin estimate 2014 (8%)
 Profit Margin estimate 2014 (8%)

The used parameters emphasize attractive valuation (31%), profitability in broad sense (26% weight), growth (16%) and dividend yield (16%).

The screen relies on estimates about future. Those combined with volatility of stock prices means that you should not try to chase screens like these (I don't). Ultimately any investment decision should be based on much more than just looking at the current numbers and estimates of future numbers.

Exit from Volkswagen

Exited Volkswagen position after some 25% gain in few months.

I realized that we have way too many positions now waiting for better days:
Micron, TeliaSonera, Fortum, oil & mining sector stocks, ..
Even our long time Western Digital position has taken a real beating this year.

Money from Volkswagen will be put into some of our existing positions which continue to be on levels I view as "bargain pricing".

Haven't yet figured which ones. Probably need to look how to hedge the bets evenly - from the viewpoint of sector and individual stock allocation.

Thoughts on Western Digital's acquisition of Sandisk

Consolidation in memory/storage space continues with Western Digital (WDC) acquiring Sandisk (SNDK).

It's not surprising to me that Western Digital is making the move instead of Seagate.

One of the reasons I originally selected Western Digital (instead of Seagate) was the fact that they used far less leverage (debt). This kind of deal would have more difficult for Seagate.

Flipping through the the presentation on this deal, the following stands out:

• Very little dilution to Western Digital stockholders (almost entirely cash deal financed via taking more debt)
• Complementary portfolios: Western Digital+Sandisk will have widest ranging storage portfolio out of all other companies.
• Combined company will have significant patent portfolio and R&D units
• Addressable market doubles

Our IT technology portfolio is heavily tilted to storage/memory/processor theme as these are the basic building blocks that are needed to fuel the huge growth of data that is ahead of us (data being stored, processed and transferred between locations).

As there has been consolidation in all these spaces, the remaining companies have good position to extract profits from growth of data as barrier of entry to these markets is high.

Update on portfolio allocations

Due to recent changes in portfolio I decided to post an update about our allocations.
Our portfolio is currently allocated as follows:

Stocks 96,2%
Gold 1,9%
Cash 1,9%

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


Geographical Allocation (stocks):

Europe 61,4%
North America 28,7%
Emerging markets 10,0%

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

Sector Allocation (stocks):

Information Technology 36,2%
Oil & Gas Production 11,9%
Low Emission Power Generation 10,3%
Forest Industry 6,3% (from now on separated from "Other" category)
Communication Service Providers 6,2%
Health Care 5,7%
Mining & Exploration 5,7%
Metal Industry 5,5% (from now on separated from "Other" category)
Other 12,2%

Top 5 positions:

Company/ETF (place of incorporation -- sector) allocation%

Siili Solutions (Finland -- IT) 10,7%
Fortum (Finland -- Power Generation) 9,9%
Western Digital (USA -- IT) 7,2%
UPM (Finland -- Forest Industry) 6,1%
Nokia (Finland -- IT) 5,9%

23,3% of all stock positions are done via ETFs.
None of those positions made it to top 5 though.