I’ve updated the Obliquity London portfolio page, trying to follow an approximately quarterly cycle. The performance since December has been below that of the benchmark — at last, it was supposed to happen! — presumably mostly explained by the Japanese market re-rating. It’s still 3 percentage points or so above the benchmark since inception.
No rising sun when the sun is rising
I considered having a handful of Japanese large caps in the portfolio during the construction phase, even shortlisted a handful, but the intention lapsed due to not resolving the hurdle of finding if and how they are tradable at a decent cost with my UK broker. Also there’s a risk of stretching my competence too thin by including a still to this day exotic culture — some aspects of understanding the companies may be lost in translation. Thankfully the broad and international exposure of existing portfolio companies should provide some connection to what happens in Japan, though with a lag compared to direct market exposure. It seems also quite likely that most of the Japan news will have more a global impact than directly domestic, if monetary policy is as interconnected as I believe it is — that is Japanese monetary easing seen as part of global easing of the worldwide convertible currency space.
Rebalancing: Reckitt reduced, Iberdrola in
Portfolio rebalance activity during the quarter was modest: Easyjet was top sliced due to price gains as per the guidelines, which I’m adjusting to include a whole of portfolio effect, that is a company should be 1/3 cut when it grows 50% more than the portfolio as a whole. The last bit is what’s new, and it’s just a reformulation of the rule in terms of weights rather than absolute size. This was necessary sooner than expected as the exuberant bull market saw the portfolio nearly reach +25% in barely more than six month which I didn’t quite plan for (at that speed) when starting last summer.
Apart from that two investment decisions: Reckitt Benckiser was downsized to a lower “mid cap” allocation, for risk mitigation because while it still passes the portfolio criterion I’m having increasing doubts about the management’s attitude — although it’s one of those companies that’s hard to sink and thus to an extent resistant to executive ineptitude.
This and dividends freed a large cap allocation to invest, which went to Iberdrola the Bilbao-based utility. While having some debt hangover from previous times, it seems well managed, well diversified in having operations in multiple countries so as to smooth the regulatory risk all utilities face, as well as benefiting from the peripheral eurozone discount. The spread across generation methods (from nuclear to renewables) contributes to diversification. It’s also on a high free float with no dominant shareholder, a rare feature in southern European stock markets.