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Island Investing

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


IIM International Portfolios: First Half of 2020

Sturm und Drang

Our hearts go out to those whose loved ones are being impacted by COVID-19; we empathize with those businesses that are trying to find a path forward during this difficult time.

The Market

As if this insidious virus wasn’t enough of a challenge, investors had to deal with early tropical storms, a Godzilla dust cloud, civil unrest and outbreaks of dengue fever in Florida and Ebola in Mongolia – not to mention the typical geopolitical gyrations. By mid-March the S&P was down 34% from its record close; but rebounded in the second quarter to just a negative 3.1%  for the whole first half of 2020 as some countries gained control over the spread of the virus and many (including some that didn’t have control) began to reopen businesses and even their borders to select foreigners. The MSCI ACWI ex USA index also bounced back, ending down 11% for the 1st half of 2020.

Our International Folios

Despite all the Sturm and Drang, Frigate our ADR (American Depository Receipt) Folio focus on capital appreciation only fell 7.3% (all returns are estimated and Folio returns are net of fees) versus the S&P 500 ADR index which fell 14.7%. In general, Frigate’s benefitted from a higher cash position early in the year and its exposure to healthcare stocks; in addition, new purchases Adidas and L’Oreal did very well. Financials, in particular those exposed to emerging markets such as Brazilian Banco Bradesco and HSBC holdings (also known as Hong Kong Shanghai Banking Corp), were obvious detractors for the six months as was energy solution provider TechnipFMC. 

Treasure Harbor, our ADR Folio focusing on yield, fell approximately 14.5% versus  a negative 18.74% for its benchmark (15% SPDR Emerging Markets Dividend ETF, 85% SPDR S&P International Dividend ETF) for the first six months of 2020, as many typically defensive companies conserved cash by cutting their dividend. In addition to the aforementioned HSBC, energy stock Pembina Pipeline and Royal Dutch Shell were drags on performance. On the other hand, Deutsche Telekom and Spanish utility provider Iberdrola were positive contributors, as was spirits producer Diageo, which was purchased this year.

Our international small/mid cap Folio, Yellowtail, was down 10.5% for the first half of this year versus a negative 13% return for the Vanguard FTSE All-World ex-US Small Cap ETF (VSS).  Strong detractors were as expected: Swiss travel retailer Dufry, British staffing company Hays and French caterer Elior.  Logitech, the Swiss provider of computer and mobile accessories purchased in the first quarter, did very well the first half, as did Japanese packaged-food company Nichirei Corp and French provider of diagnostics BioMerieux.

Other IIM Investments

In addition to our proprietary Folio, we have invested many of our clients’ funds into Exchange Traded Funds that address other areas of the markets. Adding large-cap growth has been especially effective as both our selected domestic and international growth ETFs outperformed their value peers over the first half.  Our selected domestic and international small-cap ETFs, however, underperformed their large-cap peers.   An unpleasant surprise was the performance of our low-volatility ETF; usually offering protection in down markets, it was down 13.53%. This is likely due to the ETF’s overweight in utilities and real estate which were at risk for provisioning for bad debts and bad loans.  On the other hand, the gold ETF we bought for client’s accounts did very well.

At the request of some clients during this period, we invested in some relatively conservative, fixed-income ETFs that were on the spectrum of ultra-short to medium- term durations. These behaved as expected with flat to middle single digit returns. 


The strong rebound in the markets while the virus is still spreading in some countries is a bit worrisome. The valuations of the US market, especially, seem high considering our relative lack of progress in containing the virus and the risks this may have for businesses and individuals. Although valuations in other equity markets appear more attractive, international companies’ earnings aren’t fully immune to what is happening in the US.  As we caution that past performance is not a guarantee of future results for any of our propriety portfolios or other investments made for our clients, we do suggest investors consider diversification consistent with their risk tolerance, investment outlook and financial goals.

Office Update

As some of you may know, I have moved to Raleigh, North Carolina. I am still managing the International Folios and working with Cale on the portfolios of our wealth management clients.  My phone number will remain the same, as will my email address, so please don’t hesitate to reach out with questions.  

We wish for you all a safe summer and thank you for investing with 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.