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.

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About Retz Reeves

Portfolio Manager of the Frigate and Treasure Harbor Folios.
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