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Weekly Update 13 June 2022

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Stocks dropped 5% last week due to 1) the European Central Bank being more hawkish than expected, 2) a US inflation report being worse than expected.
www.ft.com/content/5c6ffa3f-fc87-4fe5-b620-e6847affe782

We analysed the situation on the weekend and decided to take the risk level of the portfolio down massively to an exceptionally low level because:

1. Technical support on the $SPX500 at 3900 was breached. This leaves the index vulnerable to a possible vertical drop to 3400.
seekingalpha.com/news/3847989-sp-500-needs-to-hold-this-level-to-avoid-a-june-swoon

2. The Italian 10-year yield broke above its 2018 resistance level of 3.6%. That makes Italian debt potentially unsustainable. Yields on other European peripheral debt surged, too.
www.hellenicshippingnews.com/ecb-sowing-messy-some-of-what-it-takes-signal/

3. Bitcoin ($BTC) breached technical support at $30,000. This could potentially lead to selling of stocks as individual investors de-risk across the board.

We were wrong about the sustainability and duration of the May bear market rally and failed to de-risk quickly enough. We’re happy to admit this because in markets you have to stay flexible and not hold onto positions which keep going against you, if the fundamental or technical backdrop changes.

It’s rare for us to hold significant amounts of cash. The last time was in March 2020. However, we are uncomfortable holding cyclical stocks in the current situation. The risks are simply too high until central banks start to send signals that the tightening of financial conditions has gone far enough.

Fundamentally, it may be that high inflation has lowered the fair value of $SPX500 to only 15x earnings, meaning to 3400 currently.
twitter.com/thedailyshot/status/1535311084319547393

And if there is a recession next year, $SPX500 could trade as low as 2900. That’s another 25% downside from here.
twitter.com/MikaelSarwe/status/1535177816425242624

The failure to de-risk last week erased a couple of % points of our strategy’s outperformance for this year, but we’re still ahead of the index by around 14 percentage points. We make aggressive strategic and tactical calls – sometimes it leads to significant outperformance, sometimes the opposite.

𝟮𝟬𝟮𝟮 𝗽𝗲𝗿𝗳𝗼𝗿𝗺𝗮𝗻𝗰𝗲 𝗬𝗧𝗗
@triangulacapital -2.9%
$SWDA.L -17.5%

𝗣𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗰𝗵𝗮𝗻𝗴𝗲𝘀
The majority of risky positions in the portfolio were sold, leaving only a few cheap Financials and three non-cyclical stocks from the Pharma industry: $SAN.PA (Sanofi), $AZN.L (AstraZeneca) and $ROG.ZU (Roche Holding Ltd) .

Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.

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Please refer to important disclosures.

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© Pietari Laurila 2024 | All rights reserved.

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. 51% 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.

eToro (Europe) Ltd., a Financial Services Company authorised and regulated by the Cyprus Securities Exchange Commission (CySEC) under the license # 109/10.

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.

Cheap Stocks in Cheap Sectors

The strategy invests in geographies 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.

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

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.