Investing in undervalued securities worldwide

Weekly Update 18 April 2022

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Last week we completed repositioning the portfolio into stagflation beneficiaries. The portfolio is now focused on oil ($SHEL (Shell PLS (ADR)), $BP.L (BP), $SU (Suncor Energy Inc.)) and real estate ($STOR (Store Capital Corp.), $SRC (Spirit Realty Capital Inc), $GRI.L (Grainger PLC), $AT1.DE (Aroundtown SA), $CAPC.L (Capital & Counties Properties PLC), $VICI (VICI Properties Inc), $HR (Healthcare Realty Trust Inc)). There are also defensive positions in agriculture ($BAYN.DE (Bayer AG)), Healthcare ($NVS (Novartis ADR), $MRK (Merck & Co.)) and Financials ($RNR (RenaissanceRe Holdings Ltd), $IBKR (Interactive Brokers Group)).

All the stocks in the portfolio are Value stocks. A good example is recent addition to the portfolio, Vici Properties ($VICI).

Vici is a US Real Estate Investment Trust (REIT). It owns casino buildings including Caesars Palace Las Vegas, Harrah’s Las Vegas, and the Venetian Resort.

Casino buildings as a class appear to have been undervalued by the market for a long time, but recent transactions are helping to reset values higher.
seekingalpha.com/article/4492285-realty-incomes-foray-into-gaming-demonstrates-vicis-value

Vici acquired the Venetian Resort, a large entertainment property in Las Vegas, last year for $4 billion. Judging by prices paid for other similar assets in the last 12 months, this now looks like a good deal for a trophy property.

Vici was earlier this month upgraded to an investment grade credit rating by Fitch. Notes Fitch: “[N]on-traditional owners have increasingly been purchasing Las Vegas real estate […] which has led to cap rate compression and is a longer term positive as it relates to the attractiveness of Las Vegas gaming real estate.“
www.fitchratings.com/research/corporate-finance/fitch-assigns-bbb-ratings-to-vici-properties-announced-notes-upgrades-idr-to-bbb-18-04-2022

Vici’s properties are worth around $31 per share on the private market, while the shares are changing hands for $29.5. We can thus buy the properties at a 5% discount on the stock market.
seekingalpha.com/article/4498174-buy-vici-opportune-time-to-get-into-gaming-real-estate

Vici shares traded above $30 last year, and we believe a return to that level is warranted. While we wait, a 5% dividend is being paid, which provides an attractive yield in an environment where interest rates still hover close to zero.

𝟮𝟬𝟮𝟮 𝗽𝗲𝗿𝗳𝗼𝗿𝗺𝗮𝗻𝗰𝗲 𝗬𝗧𝗗
@triangulacapital +1.6%
$SWDA.L -7.9%

𝗣𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗰𝗵𝗮𝗻𝗴𝗲𝘀
$AIR.PA (AIRBUS SE) and $LEG.DE (LEG Immobilien AG) were sold. They were replaced by $SRC and $VICI .

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Disclosures

eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFD assets.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

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eToro (UK) Ltd. is authorised and regulated by the Financial Conduct Authority (FCA) under the license FRN 583263.

Your capital is at risk. Other fees may apply. For more information, visit etoro.com/trading/fees.

Pietari Laurila is not a registered investment advisor and does not offer investment advisory, fund management or wealth management services.

Triangula Capital is a brand name, not an incorporated entity.

This page is provided for information purposes only. It is not a recommendation to copy the Triangula Capital strategy or to invest in any fund or security.

2009-2020 performance figures are from Pietari’s personal Interactive Brokers account. They are time-weighted returns calculated in accordance with the Global Investment Performance Standards (GIPS).

From 2021, performance is calculated by eToro.

Past performance is not indicative of future results.

Track Record

It is often said that past performance is not a guarantee of future performance.

That is true. But there is also some evidence indicating that portfolios that performed better in the past, do perform better in the future.

“[…] top-decile prior-alpha funds produce annual future alphas of about 150 bps, net of fees” Source

Risk warning: That is only one study. In general, past performance is not indicative of future results.

Aligned Incentives

Pietari invests the majority of his net worth in the strategy. This ensures that his interests are aligned with investors who copy the strategy.

“Funds with high-incentive contracts deliver higher risk-adjusted return, and the superior performance remains persistent. The top incentive quintile of funds outperforms the bottom quintile by 2.70% per year” Source

Risk warning: Pietari holds accounts with multiple brokers and may therefore have a conflict of interest when deciding which accounts he should trade in first.

Unconstrained Investments

The strategy has fewer constraints on its investments than traditional mutual funds.

The strategy portfolio can be invested in stocks, bonds or cash and these allocations can vary over time.

Compared to traditional mutual funds, the strategy also:

  • holds fewer securities
  • trades more
  • avoids following the index

Each of these points has been shown to be an important predictor of portfolio performance.

“We […] find that portfolio concentration is directly related to risk-adjusted returns for institutional investors worldwide” Source

“A one-standard-deviation increase in turnover is associated with a 0.65% per year increase in performance for the typical fund” Source

“We find that truly active funds significantly outperform closet indexers. Further, we find that the truly active funds are able to outperform their benchmarks on average by 1.04% per year” Source

Risk warning: Concentrated portfolios with few positions can suffer large losses if bad news arrives about any of the companies in the portfolio.

Higher Risks for Higher Returns

The aim of the strategy is to maximize returns, even if this means taking more risks than usual.

The strategy invests in countries and sectors where values have collapsed due to macroeconomic problems.

Within these geographies and sectors, the strategy overweights stocks that trade at low valuations on measures such as price-to-earnings or price-to-net asset value.

Every stock in the strategy portfolio must also be a good company, with no obvious red flags or long-term threats to its business model.

Risk warning: The strategy portfolio tends to be concentrated in risky stocks, which means that its losses in any market downturn will likely exceed those of the market index.