The Indievestr Portfolio: Outperformance In July

|
 |  Includes: BLERF, BLLAY, DDEJF, FPAFY, OAK, ORKLY, PRIS.B, VIVHY
by: Mike Arnold

Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.

Beginning on July 1, 2013, I set up, designed, and implemented an unconventional portfolio seeking high, risk-adjusted returns. I call it the "Indievestr Portfolio." I plan to provide updates on the portfolio exclusively for readers of Seeking Alpha. The Indievestr Portfolio is a go-anywhere portfolio, seeking bargain investments anywhere on the globe in any industry, but limited to equities currently. The portfolio was also designed to illustrate the power of seeking investment opportunities ignored or feared by the market, when certain catalysts are looming.

Now, to the investment performance, including buy and sell decisions. July was an active month for the portfolio. For the month of July, the Indievestr Portfolio returned 7.5%, while the S&P returned 4.4%. In my view, while the Indievestr Portfolio outperformed by 3.1%, it is still too early to estimate performance in relation to a benchmark given all the moving parts of the portfolio. Moreover, the Indievestr Portfolio began the month with 51% of its assets in cash, which was drawn down as investment opportunities were identified.

July Purchases/Sales of the Indievestr Portolio

July 1: Bought shares of Prisa (NYSE:PRIS.B). It is a small position, and I wanted to dollar cost average down my cost basis. I reasoned that Prisa represents a binary event: 1) bankruptcy, or 2) multiple upside potential in the event of a looming debt restructure. Given Prisa had indicated it has approval of 73% of its creditors for the debt restructuring, and with turnaround artists Martin Franklin and Nicolas Berggruen at the helm, I allocated some additional capital for the potential of outsize returns if certain catalysts come through.

July 1: Bought shares of Billabong (OTCPK:BLLAY), adding to a position that had been established in June at slightly higher prices. I placed a small wager that Billabong management would receive favorable balance sheet restructuring. For more information on the investment thesis, see my columns here and here.

July 2: Bought shares of Vivendi (OTCPK:VIVHY), adding to a position started at lower prices. I reasoned that many catalysts were looming, which finally transpired in July. Investors were rather disappointed in the sale prices extracted from Vivendi's stakes in Maroc Telecom (OTC:MAOTF) and Activision Blizzard (NASDAQ:ATVI). The stock was up in July following the announcements, but still languishing relative to underlying value, in my opinion. I remain long, and am hopeful for further resolution of Vivendi's restructuring toward a pure play company in digital content and media.

July 8: Sold half the stake in Billabong after sharp rise in share price, and playing with the "house's money" now. I did see some additional risk owning the equity during the restructuring after it was revealed Oaktree Capital (NYSE:OAK) bought Billabong's bank debt at a discount to par. However, Altamont Partners made an offer that dilutes shareholders, but allows them to participate in the turnaround. My rough estimate of intrinsic value for the ADRs is $2.25/share, or about $900 million.

July 11: Bought shares in First Pacific (OTCPK:FPAFY), an investment holding company in Hong Kong, with listed assets throughout Indonesia and the Philippines. After a sharp drop in share price, I reasoned the discount to First Pacific's net asset value (NAV) and it's attractive assets (telecom, infrastructure, consumer staples and land) warranted an investment.

July 18: Bought shares of Orkla (OTCPK:ORKLY), after the share price dropped significantly when management reported lackluster Q2 results and certain setbacks with respect to its sale of Sapa Heat Transfer. While I think Orkla is an attractive investment for the long term, the market is taking a long time to price in these restructurings of European conglomerates. As such, on a price rebound, I may dispose of this position and allocate it to better ideas or to raise cash levels.

July 24: Bought shares of Dundee Corporation (OTCPK:DDEJF). In my view, the wide discount to NAV and exposure to land, real estate commodities and Latin America reduces downside risk of owning Dundee, with upside potential by investing alongside very astute value investors and owner/operators.

July 29: Bought shares of Black Earth Farming (OTC:BLERF), a starter position. I reasoned that a return to profitablity in 2012, combined with strong farm economics and population growth and a recent deal with PepsiCo. (NYSE:PEP) would increase the value of Black Earth Farming. Also, the downside risk appears limited given a recent rights offering that was oversubscribed and the fact that Black Earth Farming trades below book value (where land is recorded at cost).

Various: Bought shares of Dream Unlimited (OTC:DRUNF), a recent spin off from Dundee Corporation. Right now, Dream is my highest conviction pick, and the largest percentage of the Indievestr Portfolio. I reasoned that the stock was cheap because it lacked "transparency" from being commingled with other holdings under the Dundee annual and quarterly filings. I also felt the operating model as a real estate asset manager would provide stable, recurring and high-margin income, and combined with a collection of valuable land and real estate development projects that the company was significantly undervalued.

I also reasoned that increased investor awareness would help align price more closely to value. In my view, Dream is still under followed as evidenced by the lack of analyst participation on its Q2 conference call on Aug. 1. CEO Michael Cooper even mentioned that he hoped people were listening to Dream's inaugural conference call.

So what does the portfolio look like as it stands today? Here are the holdings, based on a percentage of the total portfolio.

Symbol Description % of Portfolio
DRUNF DREAM UNLIMITED CORP ORD CL-A (CDN) 22.5%
VIVHY VIVENDI SA ADR (FRANCE) 20.2%
NCR NCR CORP NEW 9.2%
ORKLY ORKLA A S ADR SPONS CL A 8.9%
-- CASH 6.9%
DDEJF DUNDEE BANCORP INC CL A SUB VTG 6.7%
ELOS SYNERON MEDICAL LTD 6.0%
FPAFY FIRST PACIFIC CO LTD (BERMUDA) 5.5%
BLLAY BILLABONG INTL LTD ADR(AUSTRALIA) 4.4%
ORSCY ORASCOM CONSTR ADR (EGYPT) 4.3%
PRIS/B PROMOTORA DE INFORM ADR (SPAIN) 2.1%
NG NOVAGOLD RESOURCES INC. 1.8%
BLERF BLACK EARTH FARMING LTD (SWEDEN) 1.4%
Click to enlarge

Conclusion

While satisfied with the July 2013 results (+7.5%), there is always room for improvement, more research to do, and a review of the month's decision-making to figure out ways to increase absolute returns in the future.

Disclosure: I am long OTC:DRUNF, OTCPK:VIVHY, NCR, OTCPK:ORKLY, OTCPK:FPAFY, OTCPK:BLLAY, OTCPK:DDEJF, ELOS, OTCPK:ORSCY, OTC:BLERF, NG, PRIS.B. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.