Investing in undervalued securities worldwide

Weekly Update 10 April 2023

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2023 has started positively for investors. Our strategy has returned +16%, doubling the +8% return of the MSCI World index ($SWDA.L).

We believe the market will fall in 2023, but may continue to show resilience in the near term because April has been the best month of the year for the stock market since 1987.

Some investors discount seasonality and say it is simply due to chance, but there are in fact good reasons for it.
twitter.com/donnelly_brent/status/1643371708391256064

Bonuses and tax refunds are paid out in the early months of the year. Some of that cash finds its way to the stock market, boosting returns between January and April. In the summer, conversely, money exists the market because this is when Americans have to pay for university tuition.

There are many other interest seasonal patterns. The stock market tends to rise around the turn of the month and stagnate for the rest of the month. This pattern might arise because paydays cluster around the 30th and 1st of each month, though this hypothesis has been contested.
papers.ssrn.com/sol3/papers.cfm?abstract_id=917884

Starting from May, we believe the market will have a more difficult time. Leading economic indicators indicate that a recession will arrive by the end of the year.
www.clevelandfed.org/indicators-and-data/yield-curve-and-predicted-gdp-growth
www.newyorkfed.org/research/capital_markets/ycfaq#/interactive

Our plan is to run a more defensive portfolio than normal for most of 2023 until a recession is properly discounted in prices.

2023 performance YTD
@triangulacapital +16.0%
$SWDA.L +7.7%

Portfolio changes
Kinross Gold and Vodafone were sold. Positions were opened in Shell and Bayer.

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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. 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 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.