Monthly report 6-2020

Summary:

  • Entered a «kangaroo market», and a possible market top on 8 June
  • Still a high cash position, but exploited some good opportunities
  • Takeover bid for one of my holdings
  • Initiated a position in Evolution Gaming as a hedge in case the bid on NetEnt fails
  • Added to my positions in Bakkafrost, Mowi and Essity and trimmed position in NetEnt. Sold all holdings in Beijer Ref as share price has outrun fundamentals
  • Portfolio performance year to date: 13.31 %

Portfolio: Nordic Compounders

I want a portfolio with high quality Nordic compounders. To be of interest a company has to have:

  • Solid balance sheet,
  • High return on capital,
  • High historic growth,
  • Stabile margins and a long term megatrend in the back.

By constantly focusing on quality compounders over the long run the outperformance against benchmarks will be great.

June has felt as long as a year, and 2020 as long as a decade. I’m still very cautious in this market and maintaining a high cash position of 27.4% at month end, up from 25.6 % in May.

Portfolio as per 30 June 2020

The portfolio is tilted towards Industrials and Healthcare, and the exposure to Finance are at a mimimum. Going forward the focus will be to add companies in the Information Technology and Consumables sectors to further diversify my portfolio

Sector allocation as per 30 June 2020

Beginning of June, the stock market did not lose any steam and is still backed by Central Banks willingness to intervene in the slightest sign of market turmoil. Investors seize the opportunity eagerly, but one can almost sense their willingness to jump on the sidelines at the release of negative market news. Some market commentators have termed it a «kangaroo markets», which is neither a bull market nor a bear market, but a market that hops up and down over a longer period of time without a strong uptrend or downtrend. Perfect for swing traders, but also a signal of increased market uncertainty.

The market narrative for the bulls are:

  • Further stimulus by the Fed will fuel the market to higher highs
  • TINA: there are no alternative to stocks with a low interest-rate environment
  • Re-opening of the economy: A normalisation of business operations when the virus finally fades away
  • Discounting 2021-22 earnings with a lower discount factor

The bear case is explained by Sven Henrich and well worth a read: The secret is out: “The Fed is busted”

Investment Journal:

As I wrote in the May report I would add to existing positions or become aggressive if the right opportunity presents itself. Several opportunities presented itself this month and I’ll go through them below.

Seafood – crashed on 15 June

Added to my positions in Bakkafrost (@550 NOK) and Mowi (@178 NOK). In my view the market clearly overreacted to the rumours of Covid-19 on a chopping board in Beijing. I believe the possibility that the virus came from Nordic salmon was minimal and the risk/reward of buying on this pullback was great.

Public offer on NetEnt by Evolution Gaming

The main event this month for my portfolio was a public offer by Evolution Gaming for all outstanding shares in NetEnt. The offer represented a premium of 43 % compared to the closing price of NETB-shares on 23 June, and the offer is 0.1306 shares in EVO per NETB-shares. Normally, the share price of the acquiring company falls on the news of large takeovers and this was not an exemption. Share price of EVO was down over 10% on the news and I picked up some shares in the company as a hedge in case the bid fails (in that case EVO share price increases and NetEnt shares decreases). After adding EVO to my portfolio my exposure to the combined EVO-NETB was 14.5%. On 26 June I cut my position in NetEnt by 50%, bringing my cash balance back to 27%.

Complete position in Beijer Ref was sold due to low risk-reward at current prices and in my opinion the ESG-premium has been priced in for now. I’ll definitely keep an eye on the company going forward and initiate a position at more favourable levels.