With the year now over, I thought I would do a quick re-cap of my performance in 2016 and how my portfolio is now positioned going into the new year. Firstly, let me give you the end-year return.
2016 year-end performance: 39.52%
The year 2016 was a roller-coaster to say the least. In Q2, Brexit saw my portfolio sustaining an eye-watering one day decline as financials across the board were dumped by nervous investors. Q3 provided some relief, before the sector took off like a rocket in the aftermath of the election of Donald Trump and fall in long-term treasury yields. Throughout the tumultuous period, I stuck to my conviction that financials were under-priced and bought more Barclays after prices collapsed in the aftermath of Brexit. Wanting to get more diversification in the portfolio, I then opportunistically took advantage of weakness in the share price of both Vienna Insurance Group and Wells Fargo (not covered on here, but covered extensively elsewhere).
Current Portfolio Weighting
- Barclays PLC: 74.5%
- Vienna Insurance Group: 11.9%
- Wells Fargo: 13.6%
2016 Position Performance
- Barclays PLC: 45.52%
- Vienna Insurance Group: 26.56%
- Wells Fargo: 22.76%
During 2016, I made 4 separate purchases of shares, the first two were for Barclays (pre and post-Brexit decision) and the other two were for positions in Vienna Insurance Group and Wells Fargo. No positions were sold at any point during the 2016 period.
Barclays: For my small portfolio this is an over-sized position. Having said that, when I compare it to competitors in the sector, it’s still cheap. It trades at about 75% of tangible book value, owns some very valuable businesses that are offset by other money losing, non-core operations that are being sold, and has what I regard as good management who are trying to take the correct long-term decisions for the business. I think that given the progress made that it’s worth at very least tangible book value, implying a 20-25% gain from the current price.
Vienna Insurance Group: My original conviction in buying this company was that it was a decent business that had operational/macro difficulties, but traded at considerably below fair value. Since then a new CEO has been appointed, we’ve seen some kitchen sinking of the bad news, and subsequent write-downs on both earnings and the balance sheet. Thankfully, things have settled with forward guidance suggesting that this is currently available at less than 10x earnings. With that said, having my portfolio engaged in an insurance company that has operations in Bucharest and Belgrade doesn’t comfort me. If I get anything close to fair value, I am more than happy to take advantage of liquidity on the way out of this one.
Wells Fargo: If there was ever proof that sometimes good things come to people who wait, it was Wells Fargo in Q3 of 2016. Seeing this company trade at as little as 11x earnings when the overall PE for the S&P was over twice that number was something that beat me over the head and until I sat up and bought some shares. The Trump rally has resulted in a re-rating of these shares. However, in comparison to the market, Wells Fargo still trades at a considerable discount, so for now I am content to hold these in my portfolio.
2016 offered me one fantastic company where to put money to work and two other decent opportunities to invest in. As of the start of 2017, I do not see the same opportunities present themselves. While I don’t like playing the macro game, or market timing, I do feel that certain equity markets are overpriced (US for example). I have no pre-cognition towards the future direction of equities, but I will always want to fish in a market where value is more readily available. With that said, the UK and Europe is the place where I would be expecting to make further purchases going into 2017.