FY2017 Results & Strategy for FY2018

Fiscal year 2017 is coming to an end so it’s time to look at the results. This time around there were multiple significant events but none of those had massive short term effect on the market. Trump won the presidential election and first year has been interesting, tensions in the Korean peninsula escalated a bit and Catalonian independence remains unclear. Then there’s the hype like Bitcoin and cryptocurrency boom which will not end well for some of the participants I suspect. Predicting the future is always a bit difficult but I’d guess that none of these issues will truly be resolved during FY 2018. I’m also expecting Euro zone to face again the underlying problems hidden by the ECB. We might see a mild market correction but I wouldn’t expect a full recession until well into the 2020’s. My personal assumption is that ECB fails to significantly raise the interest rates before the next recession. I expect the interest rates to be below 3% when the next recession forces ECB to lower them again. Having said that, I’m also interested in reducing the debt I’m carrying as a defensive measure. That’s because I believe more in defence that I do in predictions.

In the portfolio FY2017 was quite boring. Pre-tax dividend income was 4 167,45 EUR which is a solid increase from the previous year’s 3 186,27 EUR. Adjusted and currency converted portfolio value didn’t change much as it increased merely 0,15% which clearly is a loss compared to (almost any) index. This is quite insignificant for me as this is pretty much defensive and income oriented portfolio but added margin of safety would have been nice bonus. Market valuation being in general all time high, I’ve moved the portfolio once again to a maintenance mode. Currently I plan to slowly add on Fortum and Loundspring positions while using majority of the new cash to improve the debt level. This is possible due to the secondary brokerage account I opened in Nordea Bank as they have pricing model which allows small transactions with acceptable fees. I’ll also consider selling some assets to eliminate the portfolio debt but that remains to be seen. Potential elimination list contains VEREIT (turnaround play with legal issues, original target price close to 11 USD per share), Hennes & Mauritz (sector I have mixed feelings for in general) and Nordea Bank (once there’s suitable M&A taking place).

Q3/2017 Results

Third quarter is over and done with. Major events impacting the portfolio during this quarter were the still ongoing tensions with North Korea, Nordea deciding to propose moving HQ to Finland and Fortum buying a major stake in Uniper. All this didn’t cause much fluctuations in portfolio value, rather minor swings back and forth and closing with 1,32% gains. As a preparation to the Nordea decision I’ve built a bit overweight position on the company via Sampo. I don’t see that as a huge problem as both are quality companies which act as a hedge against eventually rising interest rates. Therefore it’s not likely that I would sell neither one unless there’s a major overvaluation which would justify such a thing. However I did sell my stake in Fortum with a nice profit. News on the  Uniper deal drove the share price up and since this deal increases the involved political even further, I didn’t see any problem in selling out. I might be interested in buying back the shares around 14 EUR (sold at 17,20 EUR) per share but that’s a big if. Political risk was significant before but this will take it to a whole new level.

Another short term target was to eliminate some of the debt which was a bit on the high side and above my target level. Selling my stake on Fortum made this possible even though I initiated a new position on Apple Inc. In this market situation I’d be inclined to reducing the debt even further but there are some interesting valuations to pursue as well. As I don’t see a clear mechanism for major market correction (as I ever would if one was coming) or quick changes in the interest rates, I might just as well keep the debt level target as is and keep investing as long as I can find reasonable valuations in quality companies.

Pre-tax dividends were 680,11 USD compared to 487,01 USD year before. Nothing special there, pretty much as expected. Perhaps the most positive thing was the increase from BHP Billiton which is turning around nicely. Last year they paid 39,20 USD for my 140 ADR shares and this year much nicer 120,40 USD which I expect to go up next year.

Links:

https://www.ft.com/content/af24ddac-a2d9-11e7-b797-b61809486fe2?mhq5j=e5

https://www.ft.com/content/4fc74af4-33f6-11e7-bce4-9023f8c0fd2e?mhq5j=e5

Q2/2017 Results

Second quarter is gone without any major issues. During this quarter I decided to move the portfolio into a conditional maintenance phase. With this I’m aiming to reduce the portfolio debt which is on the high side after a recent debt restructuring. Conditional in that sense that I will anyway buy additional shares if companies in my watch list drop below my thresholds. While waiting for that I’ll use majority of new capital to pay down the debt and in addition make few mainly small maintenance purchases. Once the debt level hits the targeted 0.1 D/E ratio I’ll replan my purchases. Given the current market situation I would kind of prefer having the debt ratio at 0.05 level or even eliminate the debt completely.

 

Q1/2017 Results

Q1/2017 was pretty much what I expected it to be. Markets moved mainly sideways and dividend income was slightly better than expected, some of that is explained by delayed registration of Q4/2016 dividends.

Q1/2017

Dividends received during first quarter year over year in EUR (before taxes).

It’s getting increasingly difficult to find decent valuations especially to initiate new positions. I’ve been still considering hydrogen energy as a potential new position. Originally I was looking into automotive sector with hydrogen capabilities but lately I’ve been considering supply chain position (namely NEL in Oslo exchange). It’s a sector I’m still struggling with but might initiate a position if the price is right.

Q4/2016 & FY2016 Results

Fiscal year 2016 is now officially over and what a year it was. UK voted in favour of brexit, US presidential election won by Donald Trump, Syrian conflict (among others), terrorism, rising tension between US and Russia and massive amount of refuges. Surprising enough the year ended with a bull market (especially after the US election). Portfolio performed almost too well and closed almost in all time high valuation.

Q4/2016 Performance
Q4/2016 Performance
FY2016 Performance
FY2016 Performance

 

Historic Performance After FY2016
Historic Performance After FY2016

Fourth quarter dividend performance illustrated year over year (pre-tax, in EUR).

I managed to pretty much follow the strategy I’ve created for myself. Perhaps only open issue was the sale of Deere Company. It remains to be seen if that was the right thing to do. I just couldn’t justify all time high valuation for cyclical company near the bottom of the cycle. I still think there’s a chance it can be bought back in the 92 USD range during FY2017 but I could be wrong there.

Given the circumstances, it’s now very difficult to predict anything for the next year. Major correction is inevitable but it’s pretty much impossible to time it. Personally I feel that it won’t take place next year but perhaps in 2018. I suspect that there’s a smaller correction during next year (in 10% range on index level) but that’s not so relevant for me. In case of major correction I’ve enough ammunition in place to take advantage of it. This ammunition contains possibilities to increase debt significantly, add some capital from reserves, sell and reallocate funds from my bond substitute positions (e.g. Coca-Cola and Colgate-Palmolive) if the correction is very asymmetrical. Other than that I’ll keep my strategy as it is. If there aren’t any meaningful valuations available, I’ll reduce the current debt.

Q3/2016 Results

Q3 is now officially over. This quarter was dominated with events such as the upcoming presidential election in US and speculation of Deutche Bank going under. There wasn’t that much happening in the portfolio. Value was pretty much moving sideways (not that I really care for the quarter level swings). Dividend income was as expected. There were perhaps a bit unusually many purchases as I added to my positions on Nordea, Telia Company, Coca-Cola Company and Telenor. On top of that I opened new position on Betsson AB and closed my position on Raisio Plc.

Portfolio value during Q3/2016
Portfolio value during Q3/2016

Third quarter dividend performance illustrated year over year (pre-tax, in EUR).

 

Q2/2016 & H1/2016 Results

Another quarter has passed so it’s time to summarise the results. This time around it was a little bit unusual quarter as the still ongoing Brexit saga unveiled during the last week of this quarter. Significant drop in markets was very normal result of such an event but the following days surprised with a steep trend upwards. Portfolio and some of the market is trading near all time high levels so direction during the next months remains to be seen.

Q2 2016 Performance
Q2 2016 Performance
H1 2016 Performance
H1 2016 Performance
Historic Performance
Historic Performance

The dividend income during this time period was as expected. Steady increase fuelled by new investments and better yields in key holdings. Graph contains pre taxes dividend statistics compared quarter to quarter and half to half for years 2015 and 2016.

Q4/2015 & FY2015 Report

Another quarter and fiscal year has passed with following statistics:

  • 411 USD received as dividends during Q4 (244 USD during Q4/2014)
  • 420 NOK received as dividends during Q4 (0 NOK during Q4/2014)
  • 8 purchases made during Q4 (10 during Q4/2014)
  • Total dividends for FY2015 were 458,32 EUR, 1455 NOK and 1360,81 USD (123 EUR and 584,32 USD during FY2014)

There are no major changes for strategy in FY2016. Environment is getting a bit challenging as we are, in my opinion, moving towards the end of an cycle. I expect to add steadily on cyclical companies and also those which are a bit underweight positions at the moment. Valuations might slow down the balancing of the portfolio even though I’m not fully trying to time the market. Having said that, I still have loose buy zones I try to enforce.

Q3/2015 Report

This quarter was full of market turbulence: worries about China slowing down, FED hiking the interest rates, commodities taking a beating. Market value of the portfolio decreased by 6.81 percent during this quarter. Compared to the Q3 last year, there was significant increase in the dividends received. Compared to the previous quarter though, there was a slight decrease. This is largely explained by the fact that BBL paid a dividend of 74,40 USD during Q2 but not in Q3 (they use a semi-annual dividend policy). Considering this, the overall performance was satisfactory.

Passive income during Q2 (before taxes) was as follows:

375,96 USD compared to 173,89 USD for Q3/2014 and 333,63 USD in Q2/2015.

Update: Removed false information since BBL paid during Q3 after all. Transaction didn’t show in my brokerage account until today.