Seeking Alpha

The Belgian Bull Portfolio: 2% Outperformance

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Includes: APEMY, APMSF, CAIAF, COVTY, CUYTF, CUYTY, CVVTF, FURCF, ING, KBCSF, MELI, MSFT, RDS.A, RDS.B, SFNXF, SOLVY, SVYSF, TLGHF, TLGHY
by: Tristan De Blick
Tristan De Blick
Long/short equity, value, small-cap
Summary

The portfolio outperformed its benchmark index by 1.90%.

The options portfolio generated an income stream of 0.19%, which is likely to increase next month.

I have added another low beta stock, which is on the brink on having several very profitable years.

Last month, I started the 'Belgian Bull' series. Here, I discuss the strategy I employ in my portfolio and the holdings I select. As I explained in this article, my portfolio consists of several segments, with the ultimate goal of minimizing volatility while outperforming the market.

In this article, I discuss how each of the segments has performed since the last article and which changes have been made to the portfolio.

If you wish to keep updated about my ideal Belgian-oriented portfolio, you can follow me by clicking the orange button.

Option portfolio

Above, I state which trade I made last month and how this has played out.

Below, I state which trade I make 'today'.

Aperam (OTC:APEMY) (OTC:APMSF)

1 call sold at 26.00. Price at maturity: 24.08. I thus collected the full premium of €17.

At the same time, I wrote another call at a strike price of 25.5 (spot +5%). I received a premium of €0.80. Maturity on the 18th of October.

Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B)

1 call sold at 26.00. Price at maturity: 26.63. I had to buy back the call and paid 63 euros. This is way more than the 14 euros I initially received when writing the call. I thus made a loss of 49 euros, which was compensated by the RDS being in my portfolio.

At the same time, I wrote another call at a strike price of 28 (spot +5%). I received a premium of, once again, €0.14. Maturity at the 18th of October.

Telenet (OTCPK:TLGHF)

2 calls sold at 44.00. Price at maturity: 43.80. I thus collected the full premium of €31, twice. Total profit of 62 euros.

At the same time, I wrote 2 more calls at a strike price of 46 (spot +5%). I received a premium of 0.47 euros, twice. Maturity at the 18th of October.

ING (NYSE:ING)

2 calls sold at 9.80. Price at maturity: 9.73. I thus collected the full premium of €8, twice. Total profit of 16 euros.

At the same time, I wrote 2 more calls at a strike price of 10.2 (spot +5%), receiving a premium of 0.15 euros, twice. Maturity at the 18th of October.

Faurecia (OTCPK:FURCF)

1 call sold at 50.00. Price at maturity: 44.02. I thus collected the full premium of €27.

At the same time, I wrote another call at a strike price of 46 (spot +5%). I received a premium of €2.82. Maturity at the 20th of December.

The stock portfolio

Low beta stocks

OL Groupe (OLG.PA) dropped 2.4%. The results in the domestic competition are bad, resulting in a 13th (!) spot in the League 1 ranking, with 1 less game played than most other teams. The reason the stock has only dropped 2.4% is the success in the Champions League, where Lyon defeated RB Leipzig in the group stages and now shares the top spot with Zenit, after drawing its game with the Russian side.

Payton Planar dropped 3.3%. Car registration in Europe fell 3.9%, which puts pressure on hope for a rebound of Payton's sales numbers.

Sofina (OTCPK:SFNXF) rose 14.8%. The holding took participation in a number of companies, which is likely to spur the growth of the intrinsic value even more. Furthermore, as these participations were reported in several financial news outlets, it is possible that this publicity has led to more investors buying into my favorite holding.

CA Immo (OTC:CAIAF) rose 5.3%, in a wider resurgence for German REITs.

Biotech: argenX (NASDAQ:ARGX) dropped 12.5%, no news. Galapagos (NASDAQ:GLPG) dropped 4%, with no news either. Mithra dropped 7.8%, after publishing the name of their American partner: Mayne Pharma (OTCPK:MAYNF). Investors had hoped for a larger company, which would be a safer bet.

In sum, I have earned 427 euros with this part of my portfolio, thanks to my large positions in CA Immo and Sofina, which were able to compensate for the fall of my Biotech stocks.

Growth stocks

MercadoLibre (MELI) is down 2.1%, stabilizing after its mini-crash during August. I still believe strongly in this company.

Microsoft Corp. (MSFT) is up 0.4%, after announcing its new hardware consumer products for 2019/2020.

Kinepolis is down 2.1%, after reaching an all-time high at the beginning of September. Now, investors are awaiting the impact of the American takeover.

Dividend stocks

ING Group is down 2.2%, after a very strong month in which the 'help' of the ECB already got priced into the stock.

KBC Group (OTCPK:KBCSF) is up 0.3%. Management is hold up negotiating with the labour unions in Belgium about downsizing the company.

Royal Dutch Shell is up 2.3%, after the oil price spike earlier this month.

Undervalued volatile stocks

The cool-down of the German industry has hurt my volatile stocks very badly.

Aperam crashed 17.1% after investors had sent the stock up more than 20% one month earlier. The only company-specific news this month was that Aperam is looking to pay off a debt of around 40 million euros.

Furthermore, Faurecia dropped 11.6% after reaching its peak of around 46 euros. In my personal portfolio, I sold the stock at this price, as I gave a drop in the price a rather high probability. However, as I give only monthly updates of my portfolio, this was not possible. By now, the stock has dropped enough to pick it up once again.

Last, Covestro (OTCPK:COVTY) (OTCPK:CVVTF) went up 1.8%. This seems weird to, as plastics prices dropped even further and at the same time, chemical companies such as Solvay (OTCQX:SOLVY)(OTCQX:SVYSF) dropped more than 3%. However, Covestro reported that it will sell its Polycarbonate Sheets business to Serafin Group, in order to optimize its portfolio. Clearly, investors appreciated this news.

Evolution of the portfolio

Option portfolio

I made a profit of 73 euros. This would have been higher if Royal Dutch Shell would not have increased so much right before the maturity date, thanks to the oil spike.

Furthermore, Telenet (OTCPK:TLGHF)(OTCPK:TLGHY) rose close to 4% this month, which is less than my margin of 5%. This is great, as it allows me to collect a higher premium during October.

Stock portfolio

As stated earlier, my low-beta stocks performed very well, thanks to Sofina and CA Immo. My growth and dividend stocks all remained more or less unchanged, while my undervalued volatile stocks became even more undervalued. All in all, I made a loss of €257 on the stock portfolio.

Combined total

Combining the option and the stock portfolio, I have lost €184 since the 12th of September. On a notional of €40,0000, this is a loss of 0.45%. At the same time, the BEL20, my reference index, has dropped from 3,697 to 3,610, a loss of 2.35%. My portfolio has thus significantly outperformed the reference index.

Image source: author's own work

The longer we track the portfolio, the more statistics become possible in order to compare the performance of the portfolio with the Bel20. Now, let's just keep it on comparing the total returns.

Portfolio changes

Covestro out, Faurecia in

I sell my stake in Covestro, as plastics prices continue to drop, and this will hurt the profitability of Covestro. I still believe in the company in the long term, but weak economic activity will hurt the business in the short term too much for my liking. I thus sell my 50 shares at €43.13 each.

I transfer the received funds to Faurecia, of which I buy 50 shares at €41.19 each. The remaining €97 is added to my cash balance.

Image source: Plasteurope

Double the position in argenX

As I believe that argenX has now become a real buy opportunity again, I double down on my position and buy 10 more stocks at €102.5 each.

Open a position in Immobel

As the latest stock I (dis)covered in this article, I have found that Immobel is now at the brink of having several immensely profitable years, of which I would like to profit as well. Yielding 3.6% and having a beta of just 0.53, the stock fits perfectly into my portfolio. I buy 30 stocks, each at a price of 67.2 euros.

Write a call on Colruyt

As Colruyt (OTCPK:CUYTF)(OTCPK:CUYTY) has increased by 5% over the last month, the valuation has become pretty high now, once again. As Jumbo, a rivaling retailer will make its entree in the Belgian market, Colruyt will see pressure on its margins. At a P/E of 18, investors have not priced in this risk (even though the stock is down 20% YTD). I receive a premium of €0.14 for a strike of €52.

The current portfolio

Stocks

Stock Name amount Price investment (in €) beta Portfolio weight
OL Groupe 600 3.26 1956 0.03 5%
CA Immobilien 130 32.7 4251 0.08 11%
Payton Planar 300 5.85 1755 0.4 4%
Sofina 23 201 4623 0.46 12%
Immobel 30 67.2 2016 0.53 5%
Mithra 40 25.12 1005 0.82 3%
Royal Dutch Shell 100 25.99 2599 0.82 7%
Kinepolis 35 55.7 1950 0.89 5%
ArgenX 20 102.5 2050 0.91 5%
Microsoft Corporation 15 138.12 2072 0.97 5%
KBC 30 57.62 1729 0.98 4%
ING Group N.V. 200 9.13 1826 1.35 5%
MercadoLibre Inc 4 559.22 2237 1.45 6%
Galapagos 8 138.05 1104 1.54 3%
Aperam 100 20.35 2035 1.91 5%
Faurecia 100 41.19 4119 1.99 10%
cash 2490 0 6%

Options

Underlying stock Type Amount Maturity T Strike premium
Aperam Call -1 18 Oct 19 25.5 0.8
Royal Dutch Shell Call -1 18 Oct 19 28 0.14
Telenet Call -2 18 Oct 19 46 0.47
ING Call -2 18 Oct 19 10.2 0.15
Faurecia Call -1 20 Dec 19 50 0.27
Colruyt call -1 18 Oct 19 52 0.14

Summary

The portfolio performed very well, outperforming the benchmark by almost 2 percentage points (-0.45% vs -2.35%). The low-beta segment even saw an increase in value, but this was more than offset by the large decrease in the volatile segment of the portfolio. Luckily, writing calls on that segment raked in some cash.

Biotech has had a very weak quarter, of which I made use to increase my position in argenX. At the same time, Covestro outperformed its pears while plastics prices remain under pressure. This has led me to take my profits on Covestro and redeploy them on Faurecia, which has just pulled back a little.

Thank you for reading. Over the coming month, several stocks will publish quarterly results. If you wish to keep updated about the evolution of my portfolio, be sure to follow me!

Disclosure: I am/we are long ALL STOCKS MENTIONED. 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.