Investing in undervalued securities worldwide

Weekly Update 30 October 2023

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Following a 5% fall in October, our strategy is up +14.6% for the year to date. The strategy has beaten the +6.5% return of the MSCI World index by 8 percentage points.

This is a result I am happy with, given that the areas that I invest in have not done particularly well this year. US banks are down 20%, US regional banks 30%.

Only European Financials have performed decently, up 10%. In my view, some of the biggest opportunities in today’s market are in European banks, which remain undervalued.

Where will the market go from here? On the negative side, positioning is still neutral. Investors have not capitulated or panicked; there is no palpable fear visible.

On the other hand, leading economic indicators remain positive. The OECD composite leading indicator points up; the Conference Board leading economic index appears to be bottoming; inflation is coming down.

Overall, there is no clear signal about market direction either way, with positives and negatives balancing each other out, in which scenario I stay invested.

How about the upcoming recession? Is it wise to hold an aggressive portfolio of Financials into one?

On this question, I would concur with Michael Hartnett, Bank of America’s chief investment strategist. Hartnett argues that investors are currently excessively long safe “no landing” plays, in particular the Magnificent Seven (Nvidia, Tesla, Meta, Apple, Amazon, Microsoft, Alphabet). At the same time, investors are cautious on leveraged risky plays such as REITs, banks, retail, utilities and small caps.

Hartnett believes that as soon as the next recession starts, the Fed will start cutting rates (2024 is after all an election year), which will help the under-owned leveraged plays, as their risks will then reduce. Thus, 2024 could be the first recession when leveraged stocks outperform high-quality stocks.

I agree with that argument and so am happy to hold Financials into a 2024 recession. However, to control risks, the portfolio does have a quality bias at the moment – with higher-quality banks such as Bankinter and JPMorgan overrepresented. I’m avoiding lower-quality banks, especially US regionals, as I am not confident about their capital trajectory.

2023 performance YTD
@triangulacapital +14.6%
$SWDA.L +6.5%

Portfolio changes
The earnings season has brought about some reshuffling of the portfolio, as the macro exposures of the portfolio are managed.

Euronext and Amundi, two capital market plays, were sold. NatWest was sold before earnings due to bad earnings by Barclays, another UK bank. This turned out to be the right decision as NatWest earnings also disappointed and the shares fell 12%.

New positions are:
– Bankinter, a high-quality Spanish bank that recently reported strong Q3 earnings
– Wells Fargo and JPMorgan, two large US banks. I chose Wells and JPM over Bank of America because the latter has more unrealised losses on its balance sheet and is more risky.

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.