Asos replaces Inditex

Quick update on the Obliquity London portfolio: I’ve sold Inditex (Zara, etc) and acquired Asos (internet clothing chain) instead. Sector exposures are thus unchanged.

Inditex: technical and tax reasons

I’ve not changed my mind on Inditex fundamentals as such (nice company, few issues other than family control) but there were technical reasons to rotate it.

It  was my only mid-size non-UK-listed position (all other non-UK stocks are full size large caps), which is untidy.

The second reason is that since I’ve bought it, I’ve properly understood how the taxation of international dividends works in my UK pension account: UK and US dividends are paid tax free, everything else is paid with the maximum withholding tax, 21% or so for Spain, which is arguably not outrageous. It’s often theoretically possible to reduce that tax according to double taxation treaties, that often mutually recognise pension schemes, but the bureaucracy makes it tricky. Thankfully that is another factor that vindicates my strategy to get most of my international economy exposure via London-listed companies in this account. The current excess withholding tax paid due to the continental European stocks is modest. Still every little helps and I may switch some other holdings, or hold them in another account or via derivatives, as opportunities arise.

Asos: quality at a temporary discount?

Asos is a well-run self-funded online clothing retailer, which has seen remarkable success so far. It used to be a darling momentum stock that has more than halved in value, after a profit warning which does not really affect the fundamentals. It’s expanding and investing significantly, and thus variation in sales or slight hiccups in the expansion process, which are normal, produce a profit warning. Nobody is going to do linear growth. Some of the growth is priced in, even after the price correction but I tend to think that clothing retailing tends to be a winner-take-all model with a handful of top players (see H&M and, precisely, Inditex), and so remains cheap if it grows to be a midsize player (say 1/4 the size of the current big ones). Of course they could succumb to poor execution or fickle customers they lose touch with, but on balance it seems the odds are good value balancing failure risk with growth potential. It also seems to treat employees unusually well according to reports on job review sites.

Some extra upside may be obtained if it does another momentum spike, that my max weight rules systematically would catch. It’s a bit more racy than other holdings in this portfolio, but there’s some scope for that given how pedestrian most other holdings are.

OsRam clean up

I had some shares from OSRAM, the lightbulb manufacturer, as a result of its demerging from Siemens some time ago. The company seems fine, but the position was too small — it’s of course tiny relative to Siemens — to be worth keeping.


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