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20 July, 2018
The second quarter of the year was all about the trade war between Donald Trump in the United States and Xi Jinping in China. As early as March, Trump announced import tariffs on steel and aluminium of 25% and 10% respectively. China followed quickly with an ever longer list of tariffs on American goods. The trade war turned out to be a constant in the media during the second quarter. Despite the trade war, which introduced volatility to the markets, the portfolio of A&F Investments did well in the past three months. While we followed the news closely, we kept to the same strategy: picking great companies and holding a diversified portfolio in sectors and countries. The result: the first quarter since a long time in which we beat our benchmark, despite of a large cash position.
Let’s look back at our successes and lessons in the last quarter. In the first meeting of the committee, we decided to sell Daimler. Daimler is mostly known for the car brand Mercedes, but besides luxury cars, they sell buses and trucks. The sale of Daimler was a direct result of the trade war. It turned out to be a good move, as Daimler is down 12% at this moment. In the next meeting, we decided to buy Red Hat, a company selling open source software services. Red Hat was bought as a growth stock, but is down since we bought it, as a result of disappointing first quarter sales growth. Whether this will turn out as a success or lesson, we will discover in the coming months, as we have not decided to sell it yet. We also acquired a stake in American Water Works, a company with a very low volatility, providing us with protection against a possible stock market crash or correction. Finally, we sold our positions in Boeing and Mastercard. On both we took a profit. We sold Mastercard because we believe that its valuation is fair and the biggest gains are in the past. Mastercard turned out to be one of our biggest successes ever. We sold Boeing because rising interest rates and lower revenues in China could have a negative effect on their bottom line.
The result of our actions was a better return than the American index S&P500 (3.2%), the European index STOXX600 (2%) and the Hong Kong Hang Seng index (-3.2%). The only index that had a better return than we did was our local Dutch AEX index, which rose 5% in the last quarter. This can be explained if we look at the price for a share of Shell, which rose as much as a barrel of oil, with 15%. Shell is the biggest company in the AEX and is single-handedly responsible for 2% of the total 5% of the Dutch Index.
Besides our regular meetings, we also enjoyed an educational and fun interactive quiz, given by Rembrandt Fusies en Overnames, we learned about the other sides of Finance from IBS Capital Allies and we had dinner and drinks at Market 33 with the alumni of A&F Investments. To finish the quarter, we had our quarterly strategy meeting, where the Risk team mainly educated us on possible option strategies and we followed up this meeting with drinks at Het Dorstige Hert. We can look back a quarter which was not only educational, but also profitable, with a nice return on the stakes of the members and we can look back on many moments with drinks, bites and stories from both members as partners of the committee.
