The Island Investing Blog

  • IIM International Portfolios: Thru Q3 2019

    What I Learned During Oktoberfest

                After hearing my travel woes – typhoons, earthquakes, electrical shocks  – Baader Investments invited me to their September conference in Munich where investment opportunities converged at the Sofitel in Munich, Germany during Oktoberfest. Too bad I don’t drink beer, but certainly I enjoyed the pageantry and gaiety that infused the crowds who filled the trains and roamed the streets. Even better, I met with some of our food, auto, industrial and pharmaceuticals companies,  found some  new candidates and heard updates on  economic and geopolitical outlooks. I remain grateful to Baader for this opportunity.

                Unfortunately the issues covered in the half year report carried over into the third quarter, including: Brexit,  trade tensions, emerging market volatility and anemic economic growth. Consumer stocks, in particular autos and their suppliers, and IT companies seemed particular challenged.  This phenomena was reflected in the negative performance of some of our Yellowtail stocks including, Groupe SEB, which manufactures household equipment, and Japanese AGC, which supplies auto glass and semiconductor related products.  In light of the challenging market for industrial trucks,  KION, the world’s second largest forklift manufacturer  also detracted from performance. On the other hand, reporting good second quarter number animal health provider Virbac, generic pharmaceutical provider Hikma and watch and calculator manufacturer Casio contributed positive performance.  For 2019 through the third quarter,  Yellowtail, our small/mid cap international Folio, was up  approximately 6.21% versus the estimated performance of  its benchmark VSS (Vanguard FTSE All World Ex-US Small Cap. ETF) of 7.6% .  Since inception date of December 1, 2014 through September of this year, Yellowtail’s cumulative performance is up  an estimated 25.4% versus VSS of an estimated positive 21.1%.

                For the third quarter of 2019, detractors for Frigate, our International ADR portfolio with a mandate for capital appreciation,  included Ericsson, which quantified a 12 billion SEK provision for non-compliance with FCPA (Foreign Corrupt Practices Act) enacted by a former management regime. Global software vendor SAP gave back some previous gains, although its price jumped after the CEO announced he was stepping down.  A slow down in the IT service sector, negatively impacted Indian provider Wipro. Following reporting of good quarterly results,  luxury goods provider Burberry, contract chip manufacturer Taiwan Semiconductor Manufacturing and financial exchange company Deutsche Boerse were strong performers. For the first nine months of 2019, Frigate’s net performance was 10.03% versus the gross performance of the S&P ADR Index of 9.37%.  Since inception on July 1, 2013 through September of this year, Frigate’s cumulative performance was 24.59% versus that of its benchmark of 21.86%.

                 As expected, when we trimmed positions the first half of the year, miners BHP and Rio Tinto gave back some of their gains in Treasure Harbor, our international ADR yield portfolio, during the third quarter of 2019.  Spanish Banco Santander, which recorded a 700 million euro restructuring charge, was also a detractor.  On the positive side,  Canadian telecommunication provider  BCE and Taiwanese semiconductor assembly and testing firm reported good results and Vodafone rebounded after finally completing the acquisition of Liberty Global assets in Germany, Hungary, Romania and the Czech Republic. For the first nine months of 2019, Treasure Harbor was up 9.64% versus its benchmark (15% SPDR S&P Emerging Market Dividend ETF; 85% SPDR S&P International Dividend ETF) of 13.07%.  Since inception on November 1, 2013, Treasure Harbor’s cumulative return has been 4.18% versus its benchmark of 8.79%.

                After quarter end,  the EU approved the UK’s request for a Brexit extension, China and the US continued trade discussions and central banks remained accommodative. Many equity markets redbounded, although whether the gains made this year are sustained will likely depend on progress on all of these fronts.  I expect we will continue to see fluctuations in the indices.

                Despite the near-term uncertainties, my attendance at the Baader conference reinforced my confidence in long-run investing.  The last day included presentations by smaller companies pioneering in such fields as windfarms, molecular diagnostics and cloud telecommunications. These may not make their way into our international Folios yet, but some day they and other cutting edge companies just may.

                In the meantime, please contact myself or Cale if you have any questions on our Proprietary Portfolios or our Financial Planning Capabilities. Thank you for investing alongside us at Islamorada Investment Management.

    – Lauretta “Retz” Ann Reeves, CFA AWMA

    Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Historical performance data above represents performance results as reported by the portfolio identified. Performance results are for illustration purposes only. Historical results are not indicative of future performance. Positive returns are not guaranteed. Individual results will vary depending on market conditions and timing of initial investment. Investing may cause capital loss. The publication of this performance data is in no way a solicitation or offer to sell securities or investment advisory services.

    Posted by: Retz Reeves , Commentary
  • IIM International Portfolios: Investor Letter for First Half ’19

    Mr. Toad’s Wild Ride

    When I first moved to Florida, circa 40 years ago, I couldn’t wait to go to the Magic Kingdom at Walt Disney World. I loved the scary rides, the roller coasters and in particular Mr. Toad’s Wild Ride, where guests launched through various scenes from The Wind in the Willows.  Depending upon on what track was chosen, guests crashed into a library, witnessed a shoot- out, escaped an oncoming train, and descended into a tongue-in-cheek Hell. What fun! Having grown older and put away childish things, I no longer like scary rides – or anything scary for that matter – but as an investor sometimes you have no choice but to hold on for the ride – like during the first half of 2019. 

    Markets reacted, sometimes violently, to trade tensions,  Brexit fears, lowered GDP estimates and uncertain interest rates.  For instance, the MSCI ACWI (Morgan Stanley All Country World Index) fell over 9% in December of 2018, jumped almost 8% in January, fell around 6%  in May and jumped almost 7% in June. The gross return of this index  for the first half of 2019 was 16.6%.

    For the same period, Frigate, our ADR  international  equity capital appreciation Folio, had a net return of 12.39% versus the gross return of the S&P 500 ADR  index of 11.53%. Since inception on July 1, 2013, Frigate’s cumulative performance was +  27.27% versus its benchmark of 24.26%.  The few  negative performers included  Japanese pharmaceutical company Takeda, acquired from its buy -out of our position in Shire Pharmaceuticals, and German semiconductor manufacturer Infineon.    Rio Tinto and BHP share prices benefitted from persistently high iron ore prices, and were trimmed and sold, respectively. Among other significant positive contributors were France- based Schneider Electric, which provides Energy and Automation digital solutions, and Germany-based SAP, which is refocusing its product offerings on the cloud.  

     For the first half of 2019,  Treasure Harbor, our international  equity Folio that focuses on dividend yield,  had a net return of 10.29%  versus  its benchmark’s  (15% SPDR S&P Emerging Market Dividend ETF; 85% SPDR S&P International Dividend ETF) return of 14.27%. Since inception on November 1, 2013. through June 2019, Treasure Harbor’s cumulative performance was  +4.79%  versus its benchmark of +9.95% .  This year, the significant detractor was British-based Vodaphone, which cut its dividend, freeing up cash for its pursuit of  Liberty Global and its execution of transformational  strategy. Similar to Frigate, Rio Tinto and BHP were significant contributors to performance, and their positions were trimmed. Another major contributor was Parisian luxury good manufacture LVMH, a former position in Frigate that was bought back in TH last year. Another repurchase, Swiss-based Nestle, also did well.

    Yellowtail, our international smalI/mid- cap equity portfolio was up 10.64% versus its benchmark, VSS (Vanguard FTSE All World Ex-US Small Cap. ETF)  of 12.15%.  Since inception date of December 1, 2014 through June of this year, Yellowtail’s net cumulative total return was 26.48% versus its benchmark of 21.78%. In a tough 2019  trading environment, French consumer product company  BIC weighed on performance, although I am hopeful that the “BIC 2022” transformational plan will lead to improved earnings in the future.  After reporting 2019 earnings,  the share price of Japanese packaged-food supplier, Nichirei, underwent a correction. Reviewing the company’s mid- and long-term plans, however, I am confident that they will be able to return to path of sales growth and margin expansion. On the other hand, I sold, regretfully, Swiss contract manufacturer Lonza as its share appreciated it out of the mid-cap space. On the heels of strong first quarter results, French-based provider of small appliances and cookware Groupe SEB performed very well, as did Swiss-based chocolate manufacturer Barry Callebaut, after reporting nine months numbers.

    As we enter the second half of 2019, I expect the volatility to continue and possibly increase.   The contenders for the next British PM are leaning toward a hard exit from the EU, trading issues are arising in all parts of the world and the economic outlook remains uncertain. Volatility isn’t all bad.  When stock prices become stretched, it’s a great opportunity to raise cash for the war chest.  When negative news puts pressure on share prices or creates sector rotation, there is opportunity to buy great stocks at value prices. Both scenarios have occurred over the past 12 months, and I expect will occur again.

    So, let’s make the most of the ride! Oh, by the way,  Mr. Toad’s Wild Ride closed in 1988; replaced by The Many Adventures of Winnie the Pooh. I guess that’s more my style.

    Please don’t hesitate to contact Cale or myself if you have any questions about any of our Folios or Financial Planning products, and thank you for investing with us at Islamorada Investment Management.

    – Lauretta “Retz” Ann Reeves, CFA AWMA

    Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Historical performance data above represents performance results as reported by the portfolio identified. Performance results are for illustration purposes only. Historical results are not indicative of future performance. Positive returns are not guaranteed. Individual results will vary depending on market conditions and timing of initial investment. Investing may cause capital loss. The publication of this performance data is in no way a solicitation or offer to sell securities or investment advisory services.

    Posted by: Retz Reeves , For Investors
  • Save The Date: Investor Meeting on Saturday, June 1

    It’s official: we will be holding our annual Investor Meeting here in Islamorada on Saturday, June 1, 2019.

    More details to follow.

    Posted by: Cale Smith , For Investors