Investing in undervalued securities worldwide

Weekly Update 1 April 2024

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The first quarter of 2024 ended positively for our portfolio, which gained 18%.

Stocks in my view offer the best expected returns of the major asset classes this year. As a result, the portfolio is fully invested in 16 companies.

Half (8) are European banks. I continue to believe the European banking industry is undervalued.

Take BNP Paribas, a French bank. Its shares trade at 6.6x 2025E earnings. A quick rule of thumb for banks, if you know nothing about the company, is that they should trade at 10x forward earnings. BNP may not warrant quite this multiple, because its profitability has been on the low side for the past decade. Thus, the market has been willing to pay only 8.4x forward earnings for its shares in the past. If this level were to be reached, the shares would have 27% upside.

Commerzbank, a German bank in the portfolio, trades at 5.6x 2025E earnings. This is an even lower valuation than BNP. Commerzbank, it has to be said, was unprofitable for a decade after the Global Financial Crisis. Its profitability improved, however, in 2023. Its current valuation appears too low if the bank can meet analyst expectations for its future profits.

The story is similar with the other European banks in the portfolio – Barclays, Bankinter, Nordea, HSBC, Santander and Lloyds.

In addition to the banks, the portfolio contains 3 European insurance companies and 1 company from the investment management industry. These are also cheap and provide some diversification.

The portfolio was recently refreshed by adding a Chemicals company (Arkema) and a Materials company from the stainless steel industry (Acerinox). I believe these two will benefit from an improving manufacturing cycle in Europe this year.

Finally, the portfolio contains 2 European Energy companies. Oil prices should do well this year due to a strong economy leading to more demand for oil. I do not, however, want to be overly reliant on oil, because the risk is that the war in Ukraine ends, which could lead to lower oil prices.

I remain positive on the portfolio. The stocks in it remain attractively valued. If the economy performs well this year, I believe the portfolio can go up more. This is of course far from guaranteed. The risks include a deterioration in the economy or a sudden spike in interest rates.

2024 performance
@triangulacapital +17.7%
$SWDA.L +8.9%

Portfolio changes
Natwest and Intesa were sold. They were replaced by Amundi and Nordea.

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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2 thoughts on “Weekly Update 1 April 2024”

  1. Codrescu Florian

    Dear Sir

    I am with you on eToro platform. I copy you.

    I wish you to have lucky decisions in your work.

    Best regards,

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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.