Investing in undervalued securities worldwide

Weekly Update 8 August 2022

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Stocks rose slightly last week despite the Federal Reserve sending a message that it is “nowhere near” done with its fight against inflation.

The reason for the Fed’s hawkish message is that although commodity prices have fallen, wage inflation continues to run hot.

The supply of workers has been reduced as a result of COVID-related retirements, disabilities and reduced immigration.

Thus, the unemployment rate in the US has fallen back to its pre-pandemic low of 3.5%, indicating an overheated labour market.

Stocks have rallied in the face of optimism that the worst for inflation is behind us and that the Federal Reserve can start cutting interest rates next year.

We remain skeptical. To bring wage inflation down, the labour market needs to weaken, which may require higher interest rates for longer. Purchasing Manager Indices are falling, the yield curve is inverted, profit margins are elevated and earnings estimates look overly optimistic.

The markets have now become short-term overbought, which so far this year was a signal that the end of a bear market rally was approaching.

We do not know if it will be the same this time, but since we do not see the risk-reward in stocks as being favourable over the next 9-12 months, we continue to hold a large cash position. We would change our view if leading economic indicators bottomed or if wage inflation moderated so that central banks could become more accommodative.

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@triangulacapital -4.7%
$SWDA.L -13.9%

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To earn interest on the cash balance, we have initiated a position in $JPST . It is a money market ETF that pays about 2.5% interest annually. The interest rate will increase if the Federal Reserve hikes interest rates as expected. This is a CFD position, which we normally avoid because losses on CFD positions are not tax deductible in some jurisdictions. Due to its low-risk nature, this position is however unlikely to generate a significant loss (though it is, of course, not entirely impossible). For example, in the COVID crisis, the most this ETF fell was 3%, and it quickly recovered.

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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. 76% 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

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.