A&F Investments prepares for a turbulent year

During the last quarter of the year, four new stocks were purchased and three existing positions were liquidated or phased out. Our first purchase was related to the European construction market. Strong growth potential in this sector was forecasted by one of our teams, especially in the residential and commercial construction. Fundamental analysis concluded that one of the discussed companies in this market was undervalued. After the purchase it quickly moved in our favor, gaining more than twelve percent in two weeks. Meanwhile, a quarter of the committee participated in the Studytour of A&F, travelling across the state of California, so the second meeting of A&F Investments was not very crowded. The food market and master limited partnerships (MLP’s) were discussed. The majority of MLP’s are pipeline businesses, which earn a very stable income from the transport of oil or gas. Companies with a MLP status have favorable tax treatment and provide stable yield because of their nature. We decided not to invest in it, because the demand of energy might further decrease and a rise of the interest rates could be harmful for these companies, due to the fact that MLP’s generally borrow money to fund new projects. Furthermore, the agricultural inputs industry was discussed, especially the attempt of Monsanto to acquire Syngenta. Our team wanted to pick up some stocks when it was trading for a lower price, however the stock was quickly surging after this decision. Unfortunately the limit order was set too low and we missed this opportunity. Another team has analyzed a British homebuilder and property developer. Its stable earnings growth, return of equity, stable financing plan and high dividend yield made us excited for a purchase, where a strongly correlated company in our portfolio has been phased. Afterwards this decision paid off as we have seen the stock climbing over fifteen percent within two weeks. An interesting event during the quarter was the IPO of ABN AMRO. One team member was very excited to participate in it and convinced the rest of the committee to give it a shot. It was a first for A&F Investments to join an IPO. Meanwhile the portfolio was increasingly harmed by the falling oil prices and the team tried to figure out a hedge for this oil problem. One team has worked on it and provided the rest of the committee some solutions. The first step was selling positions in an ETF of which the prospects we unfavorable. However, this is not enough to fully cover our portfolio and other teams moved on thinking about new investment opportunities. Value investing opportunities have been considered, comparing companies with different debt structures. One of the teams has investigated this, questioning what these companies exactly do, due to which event the company is mispriced and how likely it is that it will maintain its high level of profitability. Moreover, valuations of the winning three of the selection have been made, varying from a sports betting company to a designer handbags retailer. In the middle of December, Janet Yellen announced a 0.25% increase of the interest rate after seven year of near zero interest. The Federal Reserve reacts to considerable economic advances, such as a rapidly recovering labor market and clear improvements in wage development. During our last meeting of the year, we have discussed our portfolio performance over the quarter and made prospects for the next year. Although the FED state that the oil price’s decline is a temporary phenomenon, we should be beware of potential harmful effects on our portfolio. Sounds of economic slowdown in China combined with uncertainty about the oil price development will be a huge challenge for the committee the first quarter of 2016. We will doubtless follow the decisions of Mario Draghi and Janet Yellen, as we have experienced their influence in the overall stock market. Finally, at the end of the last quarter of 2015, our portfolio gained a very healthy return and I think that we can congratulate ourselves on that.