Investing in undervalued securities worldwide

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Weekly Update 7 August 2023

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This content is for information only. It is not an offer or recommendation to buy, hold or sell any investment, nor legal, tax, or financial advice. All information is provided as is and may change without notice. Past performance is not indicative of future results.

The stock market has rallied this year because the consensus view about the economy in 2023 and 2024 has gradually shifted towards a soft landing.
www.cnbc.com/2023/08/04/what-predictions-of-a-soft-landing-no-recession-mean-for-you.html

If the economy experiences a soft landing, we would expect commodities and banks to perform well in H2 2023.

First, oil looks poised to rally in the near term.
seekingalpha.com/article/4624393-could-we-see-100-oil-in-2023

Second, banks could benefit if interest rates consolidate at higher levels. That may well happen because of sticky inflation.
corporate.nordea.com/article/82947/major-forecasts-back-to-work

In general, the 2020s will probably be a difficult decade for investors, due to worsening demographics, geopolitics and the energy transition.
www.ft.com/content/ca319114-986c-4f62-8f24-cb74969209e4

However, our view is that these difficulties will most acutely be experienced by Growth investors. Value investors could instead have a good decade, with 10%+ annual expected returns available from a well-managed Value stock portfolio.

2023 performance YTD
@triangulacapital +17.7%
$SWDA.L +16.0%

Portfolio changes
Rubis and Prudential were replaced by TotalEnergies and BNP Paribas.

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Disclosures

Triangula Capital is not a registered investment advisor and does not offer investment advisory, fund management or wealth management services.

The content on the website is provided for informational and educational purposes only and does not constitute (i) an offer or solicitation to buy, hold or sell any security or other financial instrument, (ii) investment, legal, tax, accounting, or other professional advice, or (iii) a personal recommendation as defined under MiFID II.

Information on the website is obtained from sources believed to be reliable, but is supplied on an “as-is” basis without warranty as to accuracy or completeness. Opinions, estimates, and forward-looking statements reflect the author’s judgement as of the date of publication and are subject to change without notice.

Triangula Capital and affiliates may hold positions in the securities mentioned on the website and may trade them without further disclosure. No liability is accepted for any direct, indirect, or consequential loss arising from the use of this material. Readers should conduct their own independent research and consult qualified advisers before making any investment decision.

Past performance is not indicative of future results. All investments carry risk, including the risk of total loss.

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.