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Weekly Update 2 September 2024

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This content is provided for information purposes only. It is not a recommendation to buy, sell or hold any security.

A large part of my portfolio is invested in European real estate. I like the sector because it benefits from lower interest rates and because stocks in the sector are reasonably valued.

This week, let’s take a look at portfolio holding Unite Group Plc. $UTG.L (UNITE Group PLC) is the UK’s largest provider of student housing.

The company owns and operates 151 properties in university cities across the UK. 70% of the company’s tenants are from the UK, 30% from abroad.

UK student housing has long been an attractive market for companies to operate in. Demand has not been met by enough supply, leading to a shortfall of 230,000 students beds.
www.savills.co.uk/blog/article/358493/commercial-property/uk-cities-need-much-higher-rates-of-student-housing-delivery.aspx

As a result, student housing rents are increasing 7% this year and are predicted to increase 4-5% a year going forward.
www.unitegroup.com/wp-content/uploads/2024/07/Unite-Group-2024-Interims-presentation-vF.pdf

Because of strong rental growth, Unite’s property portfolio withstood the increase in interest rates since 2022 better than many others. Values decreased in 2023, but only mildly, and are currently increasing at a 7% annual rate. Analysts expect further increases in 2025 and 2026.

Historically, Unite has been valued at 1.1x its net assets on average, reflecting the market’s assessment of favourable supply/demand dynamics in its target market and the expectation that its properties will continue to appreciate.

Applying this multiple to the expected end-2024 net assets of about 1000p per share, we get a target price of 1100p, suggesting 15% upside may be available.

This appears attractive given the high quality of Unite’s balance sheet and its track record of creating value for shareholders.

2024 performance
@triangulacapital +34.3%
SWDA.L +16.8%

Portfolio changes
None

Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk. Past performance is not an indication of future results.

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© Pietari Laurila 2024 | All rights reserved.

Disclosures

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.

eToro (Europe) Ltd., a Financial Services Company authorised and regulated by the Cyprus Securities Exchange Commission (CySEC) under the license # 109/10.

eToro (UK) Ltd. is authorised and regulated by the Financial Conduct Authority (FCA) under the license FRN 583263.

Your capital is at risk. Other fees may apply. For more information, visit etoro.com/trading/fees.

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 buy, sell or hold any 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.