Monthly Archives: January 2016

AMG Substanz Swiss Mid & Small Cap Fund – Portfolio

I came across the yearly fund report of a very large Swiss Asset Manager today. It’s a cross over between a hedge fund and a value investor. And it works brilliantly.

I thought I’d share the portfolio with you, as it is a great example of a diversified, dividend generating portfolio.




Great call on the short Zurich… ^

And of special interest to me; their futures trading: (they do a CHF 100m  worth of underlying each way a year in SMI)


And also the trading:


SMI Futures Trading – Real Trades – 29.01.2016


Even though a profit has been booked, one feels stupid selling at the days low.

The error with the trade above probably is closing in the first place. If the market is prooving you right, you should double up, then exit later, or better still put a stop loss in place for the first lot and the new lot at a price where you still make a profit, bu have maximum upside potential. This is extremely difficult to do as so often a quick profit booking is much easier than a sustained effort.

Then again it frees the mind for other trades and also frees up capital.

Today I thought a Raymond James commentary was interesting:

“Who’s selling?” According to Credit Suisse, it is high frequency trading operations and index funds. I, however, would add “forced liquidation” in exchange traded funds (ETFs), margin calls, and sovereign wealth funds (SWF). Think about it, the ten largest SWFs are mostly controlled by oil producing countries, with the top three being Norway, Abu Dhabi, and Saudi Arabia.

Since oil prices are down, the oil producing countries need cash, and the most liquid place to get it is by selling some of their holdings in the U.S. markets. That said, I think the selling stampede pretty much ended at session 21 with yesterday’s whippy action between plus and minus, which is typically how bottoms are made (see the minute by minute chart at right). This morning stocks are higher as Japan goes subzero on interest rates.

This also points in the same direction (this time from S&P Ratings, specifically writing about Azerbaijan):

Oil prices have declined further over the last several months, and we now
anticipate Azerbaijan’s general government will run deficits through 2018.
In our view, external risks are increasing, with the central bank’s foreign currency reserves declining by two-thirds from their mid-2014 peak.
Moreover, we now expect the Azerbaijani economy will contract in 2016 as
exports decline while consumption falls in the wake of sizable manat

Azerbaijan depends heavily on the hydrocarbons sector; it represented about 40% of GDP and 95% of merchandise exports in 2013-2014. We now expect the  economy will contract by 1% in 2016 as exports decline and consumption falls  in the wake of the sizable devaluation of the Azerbaijani manat at the end of  last year.

Although the manat devaluation boosts the government’s fiscal performance, the continued decline in oil prices largely offsets this. Consequently, we now  forecast the general government sector to run deficits on a consolidated basis (including the sovereign oil fund, SOFAZ) through 2018. We also expect per  capita GDP, in U.S. dollar terms, to almost halve between 2014 and 2016.

Since our last publication (see “Azerbaijan ‘BBB-/A-3’ Ratings Affirmed On
Strong External Position; Outlook Remains Negative,” published July 31, 2015), global oil prices have fallen materially. Furthermore, the foreign exchange  reserves of the Central Bank of Azerbaijan (CBA) have dropped by over 40% in  six months to about US$5 billion. This compares to a peak of about US$15 billion in mid-2014. Subsequently, the CBA has abandoned its peg of the manat  to a basket of dollars and euros, leading to the local currency weakening by  more than 30% at the end of last year against the U.S. dollar. Even though  manat devaluation will help the CBA conserve remaining foreign exchange reserves and ease fiscal pressures, it will also lead to a significant decline in income levels. In particular, we expect GDP per capita to fall from nearly  $8,000 in 2014 to about $4,100 in 2016 while inflation will spike at 15% this year compared to an average of 2% over 2012-2015.

We forecast that this acceleration of inflation will cut private consumption
in 2016, resulting in an overall economic contraction of 1%. Growth will also  be held back by a fall in government spending in real terms and reduced export volumes, which reflect the depletion of oil fields as they age. We understand that, absent sustained investment, oil production will likely fall by 1%-2% a year.

Over the long term, Azerbaijan should benefit from production at new gas fields, which we expect to partly compensate for declining oil production at existing fields. In 2018, the major Shah Deniz II field in the Caspian Sea, which will bring gas from Azerbaijan to Europe, is expected to come on stream. Gas will be transported via the Trans-Anatolian (TANAP) and Trans-Adriatic (TAP) pipelines. We understand that this gas project remains on track and the  construction of TAP and TANAP started as planned last year. Heavy investments  in the run-up to the launch of the field should return the Azerbaijani economy to real positive growth by early 2017.

The weaker terms of trade have also pressured Azerbaijan’s fiscal position. As a result, following more than a decade of general government surpluses, the government reported a fiscal deficit of about 5% of GDP last year (when calculating the general government balance, we consolidate the state budget revenues and expenditures with those of the social protection fund and SOFAZ.) However, this figure excludes government borrowing in relation to projects  financed externally. Including these expenditures, the deficit amounted to  about 7% of GDP.

We also now forecast deficits averaging close to 2% of GDP over 2016-2018.
This contrasts with the 2% of GDP surpluses we previously expected for the
same period. Moreover, we see downside risks to our revised projections. In
particular, the government could find it challenging to keep spending under
control while maintaining social peace. For instance, the manat devaluation at the end of last year has eased fiscal pressures from the oil price decline,
but this effect will somewhat fade as the government increases certain social  spending to ameliorate the decline in living standards.

Even though we view Azerbaijan’s contingent liabilities as limited, as our
criteria defines the term, we also see fiscal and balance-of-payment risks
from ailing public sector financial and nonfinancial enterprises. In our view,
a number of public entities could require government support to meet their
external debt commitments.

We anticipate that the manat devaluation will also hurt the asset quality of
Azerbaijan’s banks. In particular, the aggregate banking system has a sizable portfolio of foreign currency loans to local residents with no underlying  foreign exchange earnings. We anticipate a material increase in nonperforming  loans, weakening the banking system’s capital buffers. This in turn could have implications for the government’s fiscal position in a downside scenario  should the sovereign step in to provide support.

Although Azerbaijan’s fiscal position has weakened, it still remains strong.
It is largely supported by the sovereign oil fund, SOFAZ, whose assets are
mostly invested abroad. SOFAZ assets increased to about 100% of GDP last year  owing to the effect of manat devaluation. That said, SOFAZ assets expressed in U.S. dollars are on a downward trend: They have already declined from $37  billion in 2014 to under $34 billion at the end of last year. We anticipate they will drop further, to below $31 billion by 2017, based on our current oil price projections.

Substantial SOFAZ assets also underpin Azerbaijan’s strong external position:  We estimate that the country’s net external asset position peaked at about 70% of GDP as of end-2015. That said, Azerbaijan does not publish official  International Investment Position statistics and we believe our estimates  could understate external risks.

Following a decade of strong current account surpluses of more than 20% of GDP on average, Azerbaijan’s current account surplus declined to an estimated 0.3% of GDP last year. Even with oil prices now being significantly lower, we do  not expect the current account to go into deficit given that the consumption  decline will lead to a sharp contraction in imports this year. We expect the  current account surplus will gradually recuperate toward the end of our four year forecast horizon, especially as gas exports from the new Shah Deniz II  field begin. The surpluses will remain much smaller than previously, even as  the gas exports kick in, because of depletion in existing oilfields and profit repatriation to the foreign partners in the new gas field.

We continue to view Azerbaijan as having low monetary policy effectiveness.
Even though the CBA abandoned the manat’s peg to a basket of dollars and euros at the end of last year, we are yet to see if this will materially improve the sovereign’s monetary flexibility. We estimate that, following the December  2015 currency devaluation, resident deposit dollarization has risen to about  80%, which severely limits the CBA’s attempts to influence domestic monetary  conditions. The CBA is also reluctant to use policy rates to defend its  external position: Even though the local currency has tumbled, the central  bank’s key refinancing rate has remained flat at 3% since mid-2015.

In our view, a fully floating exchange rate would help safeguard CBA’s
reserves, which have declined by two-thirds since mid-2014. However, the
latest government decisions–to introduce limits on foreign currency exchange
and an “exit tax” of 20% on foreign investments–suggest that the authorities
still want to adopt distortive measures in the foreign exchange market to
staunch further external pressure.

Azerbaijan continues to face a number of domestic political and geopolitical
risks. We believe decision-making is highly centralized and lacks
transparency, which can reduce policymaking predictability. The risks of
outbreaks of violence with neighbouring Armenia over the Nagorno-Karabakh
territory remain, but we don’t expect them to escalate into open, armed
confrontation over the medium term.


Re-opening of Tweedy, Browne Global Value Fund II – A Good Sign

I follow this value investment company as they are one of the oldest and most venerable ones out there.

From there recent press release:


Re-opening of Tweedy, Browne Global Value Fund II

The Tweedy, Browne Global Value Fund II – Currency Unhedged will reopen to new investors on February 1, 2016. As you will recall, the Fund was closed to new investors back in August of 2014, as it had become difficult to invest new subscriptions in the face of rising equity valuations. More recently, flows have become more manageable, and we now believe that the addition of new assets can be managed effectively, without risk of diluting returns to existing shareholders. This is especially true given the enhanced volatility in global equity markets of late which has begun to stimulate new idea flow. We will continue to impose for the time being a maximum purchase amount of $4,000,000 per investor on any single trade day to prevent large trades that could be disruptive to effective portfolio management.


Gives you a good idea, as a long term investor, that it is worth being ready with any sidelined money, to invest. In my humble opinion.

Here there top holdings (easy and cheap to replicate!). Not much value added by management , except the fact they don’t trade…

tweedy-brown-top-holdings_2 tweedy-brown-top-holdings_1

SMI drop of 10-12% ahead?

Looking at this chart, I wouldn’t be surprised to see a sudden and fast drop down to 6800 – 7000 level.

I’m acutally long with clients. But just looking at the chart and thinking of the momentum and positioning, that might be a real possibility.

That would be a great buying opportunity considering 1) high dividend yields,  2) low interest rates, 3) support of low oil price for world economy.


This chart I saw on would also point to room to the downside:


Importance of FX – Trading Gains when in Cash with Foreign Exchange Transactions


I was pleasantly surprised looking at a private account I have, which is extremely small in net assets. It’s an account that is pretty much dormant, except when in January there were major moves on the CHF Swiss Franc, I decided to buy EUR, USD and GBP. The chart above shows what just that move did.

Interestingly that account did better than one I manage equities actively in. Nearly double as good to be honest.

I think I can use this insight to make a mental note that

  1. gains or losses can come from unexpected places
  2. just two three transactions a year can make all the difference  i.e
  3. you can be watching the markets out of the corner of your eye on a daily basis (end of day, not intraday) and still reap very large profits with very little “work”.
  4. work is mostly NOT entering into trades, but only reacting to major sentiment shifts