Investing in undervalued securities worldwide

Weekly Update 6 November 2023

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The market rallied strongly last week. There are reasons to expect the rally to continue into the year end: market seasonality, buybacks, cautious sentiment and positioning and reduced bond supply from the US Treasury. It may also be, though, that too many people now expect a strong finish to the year, which could work as a dampening factor.

The Financial Times published an article on the weekend asking why there are still active asset managers.

The background to the article is that many sophisticated investors put a large part of their portfolios into cheap index funds, because research has found that the majority (90%) of actively-managed funds underperform the market in the long run.

This statistic is commonly cited, but it may not be the whole story. The article points out that outside the US, active managers have beaten the index by around 1% a year before costs.

Management fees eliminated most of the outperformance, however.

So it is not that active managers are bad investors as such; more that they charge investors too much to justify their fees.

This may provide an opportunity for services like eToro’s CopyTrading, which charge no management fees. (Of course, eToro charges other fees as per the fee list.)

Overall, my reading of academic research into the performance of mutual funds and hedge funds is that the market is not fully efficient: investors make mistakes and the smart money can beat the market by taking advantage of those mistakes.

The historical before-cost outperformance of active funds cited in the Financial Times article is one piece of evidence. What kinds of funds tend to outperform is another. For example, smaller funds, more active funds, funds run by individuals from poorer backgrounds (who had to work harder to get a fund manager position), and funds run by more intelligent managers all tend to outperform.

Thus, I believe the answer to “why there are still active asset managers” is that chosen correctly, with the costs managed, they can add value to investor portfolios.

2023 performance YTD
@triangulacapital +20.0%
$SWDA.L +12.4%

Portfolio changes
Peruvian bank Credicorp was sold after negative revisions to Peru’s 2023 GDP forecast. After the sale, the company revised its earnings guidance lower, causing the shares to fall. Credicorp was replaced by Bradesco, a Brazilian bank.

JPMorgan was replaced by NatWest. I think the latter has more upside after its shares fell 30% this year.

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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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. 51% 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.

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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.