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Situations That Bring Profit

By Simon Angelo

I have a booking tonight at one of my favourite Italian restaurants.  And the whole family is going to eat at half price...  Simply I'm taking advantage of a situation and a new concept called First Table.

Recognising that many restaurants are fully staffed but empty between 5-5:30pm, the First Table site lets you buy an early booking to dine at half price for 5 or $10.

They are also taking advantage of a situation.

We seek to do the same in the markets

We're looking for situations in and around our favoured businesses that allow us to buy the stock cheaply.  And following this strategy has seen a continuation of the wonderful road that opened in January.

After January's pleasing return of 5.34% for the month, we've done 4.00% for the month of February, delivering a 9.34% gain across the composite portfolio.*

 

..................................... Notice to Eligible and Wholesale Investors .....................................

Markets are on the rise again...profits will be made 
To avoid missing out, you need a brokerage account.
Find out how to apply for an account today

...........................................................................................................................................


A couple of situations have helped

First, on the forex front we managed to buy two key currencies quite cheaply.  GBP.NZD at less than $1.88.  And AUD.NZD at less than $1.04.

Both markets are currently filled with fear. 

In the UK, the pound was sold off as Theresa May came closer to crashing out of the EU. 

There's going to be some sort of deal.  It may be delayed.  But irrational fear led to overselling.  As I write, the pound is now closing on $1.95.

Australia's woe is property and that may come home to roost in New Zealand too.  Simply, the property bubble built on years of cheap credit is starting to crack.  Metropolitan home prices are draining downward with that fear.  And debt multiples, which are too high for comfort are starting to threaten the economy.

As a result, short sellers on the Aussie dollar have been active, pulling it down to a 4-year low against the Kiwi.

In this case, it's not that the fear around an Australian property bubble is unjustified - it's that the Kiwi dollar shouldn't be that much higher.  We have our own concerns here that mirror Australia's - although our debt multiples are lower.

A big worry for both countries is ongoing export volumes to China.  China is slowing and the trade spat with Trump is far from resolved.  And there will be fallout from Australia's rejection of Huawei's 5G - similarly for us if we go down that route.

The NZD softened this week quite dramatically after January's trade deficit hit an unexpected high and the earnings of export companies like Comvita [NZX:CVT] failed to meet expectations.

Equity situation

We used Brexit uncertainty, growing earnings and a predicted buyback of stock to obtain Lloyds Banking Group [LSE:LLOY] at a pleasing buy of around 58p for a number of clients.

The buyback went ahead the other week.  Earnings growth continues, especially on the online front and the stock looked about to break 64p last night.  While we wait for more growth, clients enjoy a bank beating dividend yield in excess of 5%.

So why aren't you buying more?

You make money with shares when you buy.  That means understanding a business and industry completely.  And understanding when a trend or situation gives a buy potential.

Now, we're monitoring a number of other situations, particularly in the markets of Europe, the US and Australia.

The sudden softening of the NZD has slowed us up somewhat.  If you are holding other currencies, particularly GBP, USD or EUR, those can be put to work in your brokerage account quite readily.

Meanwhile we expect to take advantage of some new, strong situations very soon.  But not today.  It's never good to buy on a Friday as people feel buoyant about the upcoming weekend (and their planned restaurant meals) and pay too much.

Book the first table and get 50% off your bill.  Another value 'situation'.
Performance update & strategy
February 2019 showed growth of 4.00% across the composite portfolio (total aggregate, weighted return across all portfolios following the strategy).  This brings performance since the start of this year to 9.34%.  Average annualized performance since 2014 (after management fee) now shows 23.24%.*  Please see our performance chart for more details.
Stock take
Source: Glencore.  A 'situation?'  Past troubles overcome may pave the way to a bright future...
Glencore plc [LSE:GLEN] has had its troubles in the past.  It was hit hard in the commodities downturn of 2015-16 and suspended its dividend to repay high debt, which turned off investors.  

I first come across the company during this time when I was living in Europe.  Two mathematicians based in Switzerland sent me details of a new hedge fund they were setting up.  In their investment thesis, Glencore was one of their top long positions.  And it went on to do remarkably well.

The future of the company (and hence the risk it carries as an investment) is still uncertain since it derives around a quarter of its income from coal.  That's making it unpopular with many who are worried about carbon emissions.

However, Glencore has turned itself around again and could be on the crest of another transition as it focuses on its other profitable commodity areas.  Last year management surprised investors with a 44% profit increase and a bumper dividend.  Now debt seems under control.  Judging by our recent success riding on the rise of Rio Tinto [LSE:RIO], Glencore's share price could be lagging the sector.  Is it about to catch up?

We're not entirely sure on Glencore's case just yet as it's been rough sailing with this company in the past.  This month we'll be studying the company a good deal more and considering whether it's a 'situation' to buy into and what the ideal strike price may be.

Meanwhile, if you have any thoughts on Glencore, do not hesitate to email me.
The month ahead
March will be a curious time after such strong gains in January and February across world markets.  There seems to be a strong fear of missing out among investors and after a nervous last quarter of 2018, they're now piling back in.  There is still value to be had through emerging situations when you go looking for them.  As always, wide research and the understanding that comes from that is key.

Regards,
Simon Angelo
CEO, Vistafolio

 

..................... Notice to Eligible and Wholesale Investors .....................

Special situations ahead...growth coming
To benefit, you need a global brokerage account.
Find out how to apply for an account today

...........................................................................................................................

*Past performance is not an indicator for future performance. Your actual portfolio will differ from the composite portfolio mentioned. Annualized returns are after management fees and after withholding taxes. The information contained in this document does not constitute an offer to sell or a solicitation to buy an investment, nor should it be construed as investment advice.  Vistafolio investment services are available to Eligible Investors and Wholesale Investors (not to Retail Investors) as defined in the Financial Markets Conduct Act (2013).
Copyright © 2019 Vistafolio, All rights reserved.


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