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Island Investing

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


IIM International Portfolios: Investor Letter For Q3 ’20

I’m over it. I’m tired of viruses, Brexit and elections; I’m tired of wearing masks, social distancing and missing my friends and family. I keep hearing “these are short-term problems; focus on the long run.”  When’s the “long run” coming?

How did my Grandmother, from whose first name my middle name is fashioned, survive all those short-terms like the Influenza pandemic of 1917-1918. World War I and World War II?  She survived the death of an infant and the economic Great Depression. She kept the farm going after her husband died of black lung and watched many of her grandchildren have children, one who is named after her. I’ve lost track of all the great-great grandchildren that are here because she survived a series if short-terms and thrived in the long run.

International investing the past few years, especially this year, has involved expecting that the long-term will correct short-term imbalances, but when? For instance,  I am optimistic that in 2021 we will have at least a partially effective vaccine for general use, more people will travel and assemble, hard-hit emerging markets will begin to recover,  oil-prices will rise and global GDP will edge up; but in the meantime the waiting is painful. Indeed, most of the underperforming stocks in our international Folios have been stocks tied to energy, including: Royal Dutch Shell (TH1), Total (TH), Technip (F) and Sulzer (YT); to hard hit Latin America, including: Ambev (TH) and Banco Santander (TH);  to Financials  BNP (F) and HSBC (TH & F); and to Business Services, including: Elior, Ipsos, and  Hays  and especially travel retailer,   Dufry (all YT).

Technology stocks were strong performers year-to-date,  including Frigate’s  Taiwan Semiconductor,  Infosys, Infineon and  especially Yellowtails’s Logitech.  Healthcare  and utility related stocks were mixed but among the former Yellowtail’s Hikma and Gerresheimer and among the latter Ericsson (TH) and  Iberdrola (F) were outstanding performers.

Stock selection is the primary focus of portfolio construction but aggregate industry and geographic exposure influenced the relative performance, both versus benchmarks and each other, of our proprietary Folio.  For instance, Frigate had few Canadian stocks, whose indices typically have large exposure to energy and financials, and had a healthy exposure to technology and healthcare. Treasure Harbor had a relatively high direct and indirect exposure to Latin America and utilities whose high dividends were/are at risk. Disparity in performance in Yellowtail stocks, as indicated above, were more linked to industry affiliation than region; in general, underperformers were hit hard by lockdowns and outperformers were more defensive.

In life it’s tempting to hunker down during a crisis and wait for the storm to pass, but the opportunities and risks were too great for investors to be dormant this year.  In Treasure Harbor, I initiated new positions in Singapore Telecom and Deutsche Post, reinitiated a position in Diageo and added to very undervalued National Australia Bank and Telefonica. On the other hand, I trimmed stocks in companies that likely will enjoy good growth during and after a pandemic but that had become too large of the portfolios, including GSK, National Grid, Deutsche Telekom, Nestle and Unilever.

In Frigate, I initiated positions in L’oreal and Grifols, reinitiated Adidas and added, perhaps early, to Heineken, HSBC, Prudential and Technip. Alcon, a spin-off from Novartis was sold, and Smith and Nephew, Infosys and Ericsson were trimmed due to their size.

2020 was an excellent time for Yellowtail to put to work its excess cash and, crossing my fingers, I initiated positions in Logitech, Vetropack and Accor and, keeping them crossed, I added to Prosegur and Dufry.  I trimmed Barry Callebaut due to its high relative position in the portfolio.

No one knows how long the short-term will last and what the long-term impacts of the US elections, Brexit, the virus and all the other challenges we will face will be, but we hope that you and yours will find a way through the short-term and thrive in the long run. In the meantime, please write or call if you have question about our proprietary Folios or wealth management strategies.

– Lauretta “Retz” Ann Reeves, CFA AWMA

1 TH – Treasure Harbor: International ADR  Folio focused on prospective dividend  yield

YT – Yellowtail: International Folio comprised of small and mid-cap stocks

F – Frigate: International ADR Folio focused on capital appreciation

2 Performance figures are estimated and unaudited. Estimated Benchmark Returns are in the column to the right of its respective Folio.

3 Gross Return

4 Benchmark is 15% SPDR S&P Emerging Markets Dividend ETF + 85% SPDR S&P International Dividend ETF

5 Benchmark is Vanguard FTSE All-World ex-US Small-Cap ETF

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.