May has been a weak month for our strategy and Value stocks in general.

US ($VTV) and International ($EFV) Value stocks have lost 3% in May.

Our strategy has lost 4%, underperforming the Value stock indices due to unsuccessful investments in precious metal miners, US real estate and negative news from a couple of individual positions (Bayer, Suncor).

Since the beginning of the year, the strategy has, however, outperformed US and International Value stock indices (which have returned -3% and +6% respectively).

The outcome is that the strategy has managed to match the overall market’s performance in a bad year for Value stocks. That’s not a great result on the surface, but we are not entirely unhappy with it because the sectors that have done well this year are the ones we generally don’t invest in.
www.sectorspdrs.com/sectortracker

The good news (and the usual consequence of weak past performance) is that the upside potential of the portfolio is significant. The banks in the portfolio are valued at 4-6x 2024E earnings. In a normal environment these companies have traded closer to 10x earnings, indicating at least 50% upside, perhaps more, is theoretically available.

Similar 50% upside potential is available from the auto companies in the portfolio. The oil companies have upside potential of 20-30%.

All of this assumes that analyst forward earnings estimates turn out to be more or less accurate. The valuations of the banks are now so low, though – near financial crisis levels – that plenty of bad news is in the price. It would take a financial crisis to push the banks’ shares permanently lower, in our view.

2023 performance YTD
@triangulacapital +11.1%
$SWDA.L +9.6%

Portfolio changes
Precious metal and tobacco positions and Suncor were sold. New positions are MetLife, Prudential and Shell.