A bit late here comes my monthly update or better said the review for February.
You can find the blog post here:
But as always, I'll post the full text for you right here at getquin:
The recovery continued at least at the beginning of February and held until towards the end of February. Last week, interest rate worries came up again, because of inflation concerns, especially from the US. This put pressure on stock prices, because rising inflation can lead to interest rates being raised by central banks. This in turn drains liquidity from the market, as debt becomes more expensive with higher interest rates and market participants tend to focus on reducing debt rather than taking on new debt. Since much of the economy and money supply is based on debt, when interest rates rise because of deleveraging, liquidity decreases and thus there is less demand for stocks. This also explains why, at least in the short term, stock prices usually fall when interest rates rise - and vice versa.
In addition, central banks have started to sell bonds again, thus withdrawing additional liquidity from the market - this in contrast to quantitative easing, when the European Central Bank (ECB) and the U.S. Federal Reserve (FED) in particular bought up bonds and flooded the market with cheap money. In contrast, the Japanese central bank is buying more bonds than ever before, and to an extent that offsets or even overcompensates for the ECB and FED sales. The reason for this is that the Japanese central bank is focusing on controlling the yield curve and has thus been pursuing an unconventional monetary policy for years. Only time will tell which effect will have a stronger impact on the market.
Value & Momentum worldwide
After the strong increase between September 2022 and January 2023, the return in the Value and Momentum portfolio has decreased again somewhat. Today we see an average return of 15.9% and a return since start of return since start of 56.7%.
It is interesting to note that during the recovery at the beginning of 2023, the stocks that did very well in 2022 did particularly well. Defensive stocks from the commodity sector took a break. Nevertheless, there are opinions in the market that expect commodity prices, such as gas, to double towards the end of the year. Goldman Sachs only recently ventured a forecast in which they see the price of gas once again exceeding USD 100 per megawatt hour - as opposed to around USD 50 today. The reason for this is likely to be a structural deficit in the supply of gas and a lack of infrastructure. In recent years, natural gas has been so cheap that there has been little investment in LNG terminals and pipelines. This is now leading to the possibility of supply bottlenecks. However, the mild winter meant that there was never an actual bottleneck in natural gas supplies to Europe, even though deliveries from Russia were drastically cut back. It is impossible to predict whether the forecasts regarding commodity prices will actually materialize.
As always, it remains exciting. One effect I see is that there are again more companies to choose from that are cheaply valued and also have high quality and momentum. I like that a lot because the value and momentum portfolio has become very commodity-heavy in 2022 after all. The commodity sector has dominated 2022. For my taste, I would prefer a slightly more balanced sector distribution in the portfolio. Nevertheless, one should not be guided only by gut feeling and emotions. That's why I use an investment strategy in asset management that is scientifically broadly based and can demonstrably lead to an excess return.
Rebalancing Value and Momentum
In February, two companies were added to the portfolio: $KGH (-0,1%) KGHM Polska Miedź is a large producer of copper and silver. An exotic company that has made its way into the portfolio is the $BVH Bluegreen Vacations Holding Corporation. The company markets and sells rights to vacation homes and manages them. I was a bit surprised myself to find such a company among the top 10% - worldwide and this only with exceptionally strong momentum and good quality. Now I am curious if and how much the company can contribute to the value and momentum portfolio.
Sold this month was $SDF (-0,07%) K + S AG, which has lost almost all of its momentum. Initially it looked very good: The stock rose from around EUR 23 in February 2022 to over EUR 35 in April 2022, meaning that within about two months, it had gained over 52%. If I had a crystal ball, I would of course have sold then. Today, we are back in the range of the entry prices. Only thanks to the dividend, the yield is a meager 0.44%. Today there are companies which are more promising. Since only one share made it into the portfolio in February 2022, only one share was sold in February 2023.
