Monthly Archives: November 2013

Copycat Investment Strategies: Example Tweedy Browne Value Portfolio Switzerland

Copycat Investment Strategies have been shown to be cheaper than investing in the real thing while at the same time capturing most if not all of the performance in the underlying holdings. You don’t pay the marketing expenses and expensive offices and analysts. As you know from the Aldi and Lidl concept, copying an original and selling it cheaper is good business for all those involved, as long as rules and laws are respected.

Today I’m taking a look at the very respected value investor Tweedy Browne, as their portfolio is one that can be easily copied, without much risk of timing/tracking error. Their portfolio of Swiss equity holdings is very stable as you can see from the graph below (note I use the ticker symbols).

tweedy-browne-swiss-holdings

There were just two changes this year. Firstly they bought close to CHF 50m worth of ABB. Second they sold into the strength of Daetwyler (Ticker: DAE).tweedy-browne-swiss-holdings-market-value

So if a client were to ask me for recommendations for a long term investment mandate I would show them Tweedy Brownes’ holdings as an example by percentage:tweedy-browne-swiss-holdings-percentage

I took Tweedy Browne, the value investor, as an example, as I believe that most long term investors will enjoy less volatility with more upside than most other strategies. Feel free to contact me via the contact form on the main website or leave a question below.

Please note that just 17% of the entire portfolio in the Tweedy Browne Global Value Fund are currently invested in Switzerland, but we’re talking about over USD 1.1bn just in Switzerland!

Here are some links to copycat investment strategies, i.e. the rationale behind it:

The Case for being a Copycat Investor:

www.theglobeandmail.com/globe-investor/investment-ideas/the-case-for-being-a-copycat-investor/article4097099/

Copycat Investing: Planning Your Retirement Like a Pro:

http://online.wsj.com/news/articles/SB105647773416202400

Cost (Issuer Margin) of Derivative Products according to the German Derivatives Association

Issuer margin by product:

product highest margin in % per year average
Options 4.14 1.96
Capital Protection 1.35 0.73
Express-Certificates 2.02 0.66
Convertible Bonds 3.50 0.65
Bonus-Certificates 2.84 0.52
Discount-Certificates 1.23 0.50
Structured Bonds 0.39 0.14

source: Deutscher Derivate Verband (DDV)

Study was commissioned by the DDV and presented by Lutz Johanning from the WHU-Otto-Beisheim School of Manangement in Valendar. He is chairholder of the Finance and Accounting Group, Empirical Market Research there.

Here are the main findings in condensed form:

Cost per year - aka Issuer Margin as calculated by the German Derivatives Association

Cost per year – aka Issuer Margin as calculated by the German Derivatives Association

IPO Strategies: Example US IPO Market January to November 2013

This data was compiled from 193 US IPOs in 2013.

This graph shows how the risk of losses rises for a strategy of buying IPOs on the close of the first day of trading and holding them (green, let’s call it ‘Strategy B’). It also shows how being allocated shares in new issues prior to trading and selling on market close of the first trading day is a much lower risk strategy (blue, let’s call it ‘Strategy A’) for several reasons: a) your capital is only tied up for 1 day – 10 days (depending on if your bank needs cash on an account for the whole potentially allocatable USD amount) b) you profit from bookrunners generally underpricing new issues. Strategy B let’s you invest at what the market thinks is fair value, which of course offers less upside.

Note how the regression line of Strategy A is constantly and clearly in the 15-25% return range. That’s in stark contrast to Strategy B which has a downward sloping regression line that is close to 0% in the last 2 months (left=November, right=January). As this year has been a bull market the IPOs from January through April have risen in line with the market.

US_IPO_Market_1st_Day_Close_vs_Current_1

Also see yesterday’s post for more graphs.

Should you be interested in benefiting from the possibilities in the worldwide IPO market, feel free to contact me via the website contact form or facsimile. Should you need assistance opening a swiss bank account, I will also gladly help you.

 

US IPO Market 2013 – Performance & Deals (Size) YTD

The following two charts show the performance of the newly issued/listed US shares in 2013 YTD aswell as the size of issues being placed. Note the performance is calculated on the assumption you were allocated shares at issue price and sold on close of the first day of trading. A total of 193 issuers placed shares. Left to right = November to January (2013). So the latest action is on the left hand side of the graphs…

US_IPO-Market_2013_Issue_Price_vs_Closing_1st_Day US_IPO-Market_2013

Had an investor been able to invest USD 10k in every issue, he would have returned over 16% YTD on every of the 193 (!) trades on average. The tricky part is of course not being given chicken size allocations in hot deals and full allocation in the lame ducks. That’s where a person comes in handy who’s following the markets daily and has a network of contacts. For example: If you had subscribed for USD 100k worth of Twitter and received just USD 5k of paper, but had subscribed 100k to Mavenir Systems and been allocated USD 100k worth,  your performance would be close to zero after fees even though Twitters’ performance was over 72% and Mavenir Systems just down 3.5% (both on their respective day of issue).

Should you be interested in benefiting from the possibilities in the worldwide IPO market, feel free to contact me via the website contact form or facsimile. Should you need assistance opening a swiss bank account, I will also gladly help you.

SNB FX Holdings in EUR Including & Excluding Derivatives

From data published by the SNB I compiled the following charts, which show how the EUR holdings as a percentage of total FX reserves have seen massive fluctuations. Also interesting to note how the holdings including and excluding derivatives diverged substantially from mid/end 2011 to mid 2012.

SNB_FX_EUR_Holdings_1

Light Blue (above): Currency breakdown of foreign currency investments, excluding foreign exchange derivatives (quarterly)

Dark Blue (above): Currency breakdown of foreign currency investments, including derivatives, excluding investments and liabilities in connection with foreign exchange swaps (quarterly)

SNB_FX_EUR_Holdings_2

PPP Model – Swiss Franc (CHF) overvalued vs EUR, EUR undervalued vs CHF

CHF-overvalued-vs-EUR

This chart was published today by BofA ML, showing the Swiss Franc (CHF) overvalued by approx. 5% vs EUR.

From wikipedia:

PPP exchange rates can be useful for making comparisons between countries because they stay fairly constant from day to day or week to week and only change modestly, if at all,from year to year.  Second, over a period of years, exchange rates do tend to move in the general direction of the PPP exchange rate and there is some value to knowing in which direction the exchange rate is more likely to shift over the long run.

Quote from BofA ML report:

Countries can go on for years with an overvalued currency. Indeed, equilibrium
estimates are supposed to be the steady state to which the exchange rates
converge in the very long term.

 

Sidenote relevant for CIIA exam:

What is the difference between PPP and the ‘Law of One Price’:

The law of one price applies to individual commodities whereas PPP applies to the general price level.

source: wikipedia