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Island Investing

Riffs, rants, and the upside of investing from way off Wall Street


IIM International Portfolios: Q1 2020

“When We Are Absent One From the Other”

In 2019, the equity market overcame trade disruptions, Brexit fears and slowing economic growth only to be impaired this year by a piece of RNA that jumped  from bats to humans, humans to humans, city to city and country to country. Travel restrictions were put in place, businesses were shuttered and earnings estimates for stocks dropped precipitously, as did equity markets;  The Morgan Stanley All Country World Index fell 21.37% for the first quarter of 2020.    As I write the number of deaths globally have surpassed 100,000. Our hearts and prayers go out to all of your during this humanitarian crisis, and we wish for you and yours safety and comfort.

For the first quarter of 2020, our international ADR (American Deposit Receipt) Folio Frigate, that focuses on capital appreciation, fell on a net basis an estimated (all returns for benchmarks and Folios will be estimated) 21.4%. Economically sensitive stocks such as luxury goods provider Burberry and French bank BNP were the greater detractors of performance. On the other hand, pharmaceutical companies Novo Nordisk and Roche yielded a positive return. Relative to the S&P 500 ADR index, which fell 25.6%, Frigate benefitted from its cash position, which as with all of our international Folios, was the result of high valuations at the year beginning of the year.  Some of  this cash  was deployed into adding to some current positions and initiating or revisiting new positions in quality stocks finally trading at attractive levels; including L’Oreal and Adidas.  Since inception on July 1, 2013, Frigate has delivered a positive cumulative net return of approximately 10.3%.

Over the same period, our international ADR Folio Treasure Harbor, which focuses on dividend yield, fell approximately 21.50%. Not surprising, energy related stocks Pembina Pipeline, Total and Royal Dutch Shell fell among investor concerns over their plans to conserve capital rather than returning it to shareholders. Performing relatively well were defensive positions such as Iberdrola, a Spanish utility company, and Nestle. China Construction Bank Corp also was an outperformer.  Treasure Harbor’s benchmark (85% SPDR S&P International Dividend, 15% SPDR S&P Emerging Markets Dividend ETF) was down approximately 24.2% during the 1st quarter. Although a modest cash buffer helped Treasure Harbor during the quarter, a below benchmark weighting to Emerging Markets and Financials also likely helped. There were no major changes in positions during the quarter; some of the excess cash was deployed in April. Since inception on  10/1/2013, Treasure Harbor has returned a negative cumulative return of approximately 11.7%.

Yellowtail, our international Small/Mid- Cap Folio, was down approximately 22.1% the first quarter of 2020. Yellowtail’s benchmark VSS (Vanguard FTSE All-World ex-US Small-Cap Index ETF) was down an estimated 29.6%.  The major detractors aren’t a surprise, including:  travel retailer Dufry, pumping solutions provider Sulzer and market researcher Ipsos.  Defensive stocks, such as Japanese packaged-food company Nichirei, Swiss chocolatier Barry Callebaut and UK generic manufacturer HIkma were great buffers.  This was a great time to start deploying Yellowtail’s excess cash, some of which went to initiate two Swiss positions: Logitech, a manufacturer of computer peripherals and software, and Vetropack, a manufacturer of glass packaging. Since inception on 12/1/2014, Yellowtail has generated a positive cumulative net return of approximately 12.2%.

In addition to managing our proprietary portfolios, we continue to reach out to clients and fine-tune their asset allocation.  In many cases we have been slowly deploying excess cash into ETFs giving exposure to asset classes such as:  Low Volatility, US Small Cap and Domestic and International Growth  Please let us know if you want us to revisit your asset allocation.

Toward the end of March,  equity markets, anticipated the peaking of the crisis and noting various governmental supportive and economic stimulating actions, began to bounce off their lows. Trading is still volatile, but, colloquially, appears to be more rational with sector rotation and stock selection taking over from panic selling.  As investors monitor corporate announcements, viral containment efforts and economic progress, I expect the markets to remain volatile but ripe for opportunistic and strategic investments. I am mindful, and you should be too, that uncertainty is playing on many stages and it is time to invest carefully and wisely.

In the meantime, I truly hope that the citizens of the world learn from this experience and:

1. Vow to respect the Earth and all of its creatures

2. Prioritize comprehensively addressing healthcare needs

3. Put long-term safety and happiness above short-term greed

4. Wash hands frequently– Seriously, go wash your hands!  I’ll be here when you get back.

In this time of social distancing, I am remembering how we closed services at the Federal United Methodist Church in Oakdale Pennsylvania: “ The LORD watch between me and thee, when we are absent one from the other.” (King James Version,  Genesis 31:49).  Amen.

– 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.