IIM International Portfolios: Investor Letter for 2020

From Charles Dickens to Amanda Gorman

Dickens authored 2020. Whether pondering the coronavirus and the vaccines, social injustice and the response or the fall and rise of global equity markets, “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity…….”

Against such a backdrop, it’s not surprising that international equity markets experienced periods of volatility in 2020 which led to some unusual activity in IIM’s international Folios. As a Value Investor (albeit not a “deep value” investor), I am used to adding stocks to the portfolio that are out of favor and holding them, sometimes four, five or ten years, and then selling them when I think the market has fully recognized my genius, usually too early, or “fundamentals have deteriorated,” (code for I screwed up). The assumption was that if I was right 2/3 of the time, I would have a good chance of beating the benchmark.

Well at one point in 2020 almost every stock was out-of-favor, and I found myself buying or rebuying stocks not traditionally considered “value.” In Frigate, our International Large-Cap ADR portfolio, this was a successful strategy for taking positions in L’Oreal (trimmed by year-end) , Adidas and Grifols and adding to Prudential PLC. Less successful adds were to HSBC early in the year and Bayer and Takeda later in the year.  Harvesting losses, China Petroleum and Technip were sold late in 2020 in the year, the latter after averaging down early in the year. Asset turnover increased later in the year as many stocks, especially technology companies were trimmed as they outperformed the broad market and became overly large parts of the portfolio.

It was a hard year for Treasure Harbor as many companies suspended dividend payouts in exchange for payroll assistance, to offset anticipated customer delinquencies and/or to build a prudent cash pile. Anticipating that dividends would be eventually restored, I resisted the temptation to sell all those stocks whose dividends were at risk.  In some cases that strategy is playing out well; but it didn’t work all the time last year– especially with energy stocks such as Total, Royal Dutch Shell and Pembina Pipeline and stocks with exposure to South America such as Telefonica and AMBEV and HSBC.  Outsized positive contributors were a bit more eclectic, including:  Iberdola, Spark New Zealand,  Rio-Tinto  and LVMH.  Much of the cash position coming into the year and from positions that were trimmed were used to take add to some of the beaten down stocks and initiate positions in Amcor, Diageo, Deutsche Post and Singapore Telecom.

Overall Yellowtail, our international SMID cap Folio, did well for the entire year, but there was a wide range of performance of individual stocks. Among the worst performers were French catering company Elior, Japanese pharmaceutical company Sawai and British recruiter Hays. The best performers were equally eclectic including; Swiss manufacturing company Bucher, French manufacturer of in vitro diagnostics BioMerieux , German manufacturer of chemicals Wacker Chemie and German manufacturer of specialty glass Gerresheimer.  Swiss producer of personal computer and mobile accessories Logitech was such a successful purchase early in the year that it was trimmed later in the year. Several other trims added to the high cash level with which Yellowtail entered the year, and with an eye toward happier times, was deployed into new positions such as French hotelier Accor, Swiss glass manufacturer Vetropack and Swiss Bell Food Group. Bravely, I added to Swiss travel retailer Dufry and Spanish security provider Prosegur. Most of these additions have done well so far, benefitting especially in the translation of the foreign stock price to the dollar that weakened later in the year.  

I guess none of us really thought when we threw away the 2020 calendar and hung 2021’s that life would magically improve, and it sure didn’t. A Tale of Two Cities first sentence ends:

“…….it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.” 

And so life goes on today, but being an optimist, I wish that each pair of words was reversed. Rather than end in despair, I would rather end in hope.

I am not a Pollyannaish, the issues our country and the world face seem insurmountable; but I am encouraged by Amanda Gorman’s (2021) inaugural poem which ends:

“The new dawn blooms as we free it, For there is always light, If only we’re brave enough to see it, If only we’re brave enough to be it.”

Amen.

– Lauretta “Retz” Ann Reeves, CFA AWMA

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[i] Performance figures are estimated and unaudited. Estimated Benchmark Returns are in the column to the right of its respective Folio. Net Returns are after international taxes on dividends,  management fees and trading fees, when necessary.  Historical returns are available on request and at Callan and Investment Metrics.

[ii] Gross Return.

[iii] Benchmark is 15% SPDR S&P Emerging Markets Dividend ETF + 85% SPDR S&P International Dividend ETF. Total return based on price.

[iv] Benchmark is Vanguard FTSE All-World ex-US Small-Cap ETF. Total return based on price.

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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