Performance Review 2023 | value and opportunity

2023 overview
2023 was quite good in absolute terms, but below the benchmark in relative terms. Value & Opportunity portfolio acquired 14.3% (including dividends, no taxes, AOC fund as of 09/30/2023) versus +16.2% for Benchmark (Eurostoxx50 (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%), all performance indices including dividends). Links to previous Performance reviews can be found at Performance page blog.

Here are some other funds I follow that performed in 2023:

Partners Fund TGV: 19.6%
Profitlich/Schmidlin: +23.2%
Squad European Convictions +9.9%
Frankfurter Aktienfonds für Stiftungen +7.4%
Aguja Team Special Situation +4.4%

Paladin One -5.2%
Alphastars Europe +13.7%

Peer performance largely reflects weakness, particularly in European/German small caps, especially those outside the indices. If you missed a few bright spots, you significantly underperformed.

During the 13 years from 31/12/2010 to 31/12/2023, the portfolio was gained +398% vs. +120% for Benchmark (before tax). In CAGR numbers, this means 13.2% pa for the portfolio vs. 6.2% pa for Benchmark. The portfolio also ended in 2023 with a new All-time-high. As a graph it looks like this:

I have to admit that I am still surprised by the magnitude of the compound effect. ~13% pa ​​has now resulted in €5 from €1 invested in December 2010. As mentioned, I expect a lower rate in the future, but the compounding over time is incredibly strong.

Current portfolio / Portfolio transactions and New positions:
In 2023, portfolio activity was moderately busy as mentioned in the document 22 (+1) Investments for the year 2024 post.
The new positions were: SFS Group, Logistec, Energiekontor, Italmobiliare, Laurent Perrier, DEME and SAMSE.

Sold positions: In 2023 I sold Meier Tobler, VEF, Rockwool, Recticel, Schaffner and Nabaltec. Temporary members were Scor and Broedr. Hartman (Special Session). The current portfolio as of 31/12/2023 can be seen as always on the portfolio page.

Some portfolio statistics
The weighted holding period as of 31.12.2023 was 4.2 years and is within my 3-5 year goal. Tea The top 10 positions account for approximately 52% (56%) portfolios, the largest 20 for approximately 86% (87%). The lower concentration in the top 10 is the result of either selling (Meier Tobler) or buying out (Schaffner) the two largest positions.

“Active sharing” vs “doing nothing”
A “do nothing” approach, i.e. let the Portfolio run from 12/31/2022 and collect dividends, would only lead to performance from 8%, so my “active contribution” in 2023 was again quite significant. The main reason was some timing, eg the sale of Meier Tobler almost at the top, new positions (Logistec, DEME), but mainly the increase of Schaffner’s position before the takeover offer to a full position. This increase alone was responsible for the 400 bps “up” vs. do nothing.

Monthly returns 2023
In relative terms, 2023 got off to a pretty bad start as the portfolio underperformed the benchmark by nearly -7% in a crazy January. Relative underperformance increased to almost -12% in July. Only in October, after 3 strong months and with the help of the Schaffner takeover, the portfolio matched the benchmark:

Annual returns 2011-2013
2023 was only the second year in 13 years that I fell short of the benchmark. This was clearly due to the significant underperformance of small companies as noted above. My benchmark consists of 50% German/European large caps, whereas my only large cap is ACT with a weight of 5%. The second reason is the spread of returns with very strong returns in a year where my “low beta” portfolio needs time to catch up.

Bugs in 2023
As always, I made a lot of mistakes, among them selling Nabaltec a little early (or actually too late), which caused quite a few comments on the blog. Also, I obviously got too early into construction/renovation related stocks like Sto and Solar.

Another mistake was not moving more aggressively into unfavorable stocks in October. Yes, I bought a DEME, but I could have done more. I keep my ~10% cash position so I can jump on opportunities like this, but I haven’t. I had some high quality stocks on my watchlist (Tomra, Righmove) but I set the limits too low.

Plus I missed out on a really good year for banking and insurance. I added SCOR at the beginning of the year, but got scared when the CEO suddenly resigned. While I’m still somewhat skeptical about the fundamentals of many insurers and banks, the “higher interest rates are great for insurers” narrative was pretty obvious and I could count on it.

What happened in 2023
The sale of Meier Tobler for what I thought was “full valuation” turned out to be good timing. Also, raising Schaffner when the fundamentals improved and the stock was doing nothing was clearly good. In the end, investing in DEME and the bottom of the cycle for offshore wind proved to be a decent idea so far.

Lesson 2023
I think the biggest lesson (again) is that patience is key. Despite the significantly below-average performance during the year, it was important not to change the strategy. If nothing fundamental changes, my portfolio usually “recovers” after a few months.

Additionally, I think it makes sense to check in on the “highly unfavorable” sectors from time to time to see if there is a shift in sentiment.

Strategy and outlook for 2024
Last year, I warned about tech stocks and that they might not show up quickly. It was clearly not a good call. So, as a lesson learned, I won’t be making any such calls this year. To be honest, I have no idea what 2024 will bring for the stock markets. It could be good, bad or completely uneventful.

For me, (renewable) energy is still a big topic in 2024, as well as “bricks and machines”. Infrastructure is another file that I find interesting. I don’t think we’ve seen the bottom of the cycle, especially in Europe, but since stocks usually “look ahead” at least 6-12 months, I’m optimistic that we could see better performance in these sectors (in relative terms) in 2024. But then again I could be completely wrong. For me, the most important thing is to focus on “quality companies”. They offer adequate returns in the long run and let me sleep well. I leave the super cheap stuff to others. By quality I mean a decent business with decent returns and capable management, preferably with equity stakes.

And of course I’ll keep turning over a lot of rocks and maybe I’ll find something valuable here and there, maybe in Belgium 😉

Bonus Tracks:
To enjoy the fruits of long-term compounding, the most important advice is to “Keep Going” no matter what happens:

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