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Weekly Update 7 October 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.

The portfolio fell a few per cent last week due to the intensification of tensions in the Middle East. A war that is limited to the region will probably have a limited impact on the global economy, so I remain bullish on the economy and on stocks. The main story remains that interest rates are heading down, which will powerfully stimulate the economy in 2025 and 2026. How powerfully depends on how inflation behaves, and whether central bank will have to pivot to fighting it again.
https://x.com/AndreasSteno/status/1843002313193201708
www.newyorkfed.org/research/policy/mct

The portfolio is positioned to benefit from a strengthening economy and higher markets via a few themes:

1. European banks (BNP, Deutsche, Santander, Barclays, Nordea). Their shares are significantly cheaper than US banks’, and their markets units will make more money if lower interest rates lead to higher stock market levels.

2. Asset managers (Azimut, Man). These are a direct play on higher stock markets. They can charge more fees to their clients if their assets under management increase. Their cheap valuations, 6-7 times next year’s earnings, suggest they are currently priced for a lower stock market.

3. Dutch life insurers (ASR, NN). They hold Dutch mortgages on their balance sheets, so a major concern has been the health of the Dutch housing market. But Dutch house prices turned around last year and the housing market there remains healthy.

4. China (Prudential, Arkema, Clariant, Wacker). I don’t like to buy Chinese companies directly, so exposure to China is obtained via Western companies operating there (Prudential) or companies that have historically benefited from strong emerging markets (Chemicals).

5. UK real estate (UNITE, Tritax, Land Securities). UK listed real estate has underperformed recently because the Bank of England has been seen as being slower at cutting interest rates than other major central banks. If the Bank of England catches up with the rest of the central banks, it is reasonable to expect UK real estate prices to increase.

Overall, the portfolio has a strong pro-cyclical tilt which expresses my belief that the markets will head higher from here.

2024 performance
@triangulacapital +36.9%
SWDA.L +18.1%

Portfolio changes
Vinci was replaced by Clariant.

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.

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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.