Investing in undervalued securities worldwide

Weekly Update 15 May 2023

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Since the end of January, Growth sectors have handily beaten Value sectors:

Growth sectors
Technology (XLK ETF) +11%
Communications services (XLC) +8%

Value sectors
Financials (XLF) -13%
Energy (XLE) -13%

@triangulacapital -3%

Our strategy performance is better than the sectors where most of the portfolio tends to be concentrated (Financials and Energy) but it has fallen far short of the Growth sectors.

There may, however, be light at the end of the tunnel. Last week, the OECD leading indicator turned up.

This is a signal we have been waiting for for the last 1.5 years. The indicator turned down in late 2021 and has been falling since.

It has historically been the case that stocks, and in particular the kinds of risky stocks we invest in, do better in periods when the OECD leading indicator is increasing than when it is decreasing.

Over the past decade, big losses in our strategy have tended to happen when the indicator was pointing down (in particular, 30% drawdowns in February 2016 and December 2018), while big gains have tended to happen when the indicator was pointing up.

We believe there is a good chance the same will happen this time around too.

Bank of America equity strategist Michael Hartnett last week compared the current market to that of 2008 after the collapse of Bear Stearns bank. In 2008, just like now, tech stocks rallied after the banking troubles started. What is different this time is that defensive stocks have outperformed riskier cyclical stocks, as investors have been aggressively positioning their portfolios for a recessionary environment, fearing a repeat of the 2008 crash. The cyclicals – banks, oil companies, REITs and small caps – have become cheap, with prices that already incorporate a recession. A confirmation of the start of the recession could then counter-intuitively provide a catalyst to buy cyclicals, as the bad news will then be out, the recession may not be as bad as feared, and uncertainty starts to reduce.

We would agree with Hartnett. The recession is a well-known problem and investors are prepared for it.

How do we act in this situation? By doing something different from the crowd. It is not possible to beat the market by always being defensive ahead of a recession and doing the same things as others – i.e., investing in cash, bonds or technology companies.

Thus, we have decided to dial risk in the portfolio back up again, this time with a more “tough it out” mindset. We were cautious for the past 1.5 years and reduced risk aggressively multiple times – in March 2022, June 2022, November 2022, March 2023 and May 2023. This is not usual for our strategy but it was done because we wanted to avoid the 30% drawdown the strategy previously experienced in February 2016, December 2018 and March 2020.

The OECD leading indicator a kind of lode star for us, and we are happier to take risk more aggressively when it is pointing up. Risks remain, to be sure, and we would not be surprised to see another drawdown over the coming months, due to the impending recession. We are mentally prepared for it and would use it as an opportunity to add funds to our account. For the first time since 2021, there is the possibility of some real money being made over the next 12 months, we believe.

2023 performance YTD
@triangulacapital +11.2%
$SWDA.L +8.8%

Portfolio changes
We bought US real estate companies (Equity Residential, Simon Property Group, Healthpeak Properties), oil companies (Eni, Suncor), auto companies (Stellantis, Volkswagen), Financials (Equitable Holdings, Santander), and tobacco (British American Tobacco). All these companies are cheap. Some have >50% upside to our fair value estimate. Most are, of course, also risky companies – if the economy deteriorates, their shares will fall fast. This allocation is in line with our approach of higher risks for higher returns.

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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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.