Librarian Capital Monthly Update - Jan 2021

Summary

• Our long-only portfolio lost 3.9% in GBP (3.6% in USD) in January, 250 bps behind MSCI World, which lost 1.4%.
• Since 2019, we have gained 41.2%, 5 ppt ahead of MSCI World and ahead of other key indices; our annualised return since 2008 is 13.9%.
• We exited Diageo and Hargreaves Lansdown during January; proceeds were redeployed into Charter, Unilever, Altria and Facebook.
• The top 5 detractors were Visa, Mastercard, Charter, Zoetis and Facebook; the top contributors included Microsoft and JP Morgan.
• At the end of the month, we held 18 stocks, of which the top 10 were 68% of the portfolio’s value; cash was at 6.5% (down from 4.2%).

Note: We have put the qualitative comments on our portfolio holdings and research coverage in a separate "Monthly Top Buys And Price Moves" newsletter. The monthly update here has been simplified to consist mostly of quantitative performance data.

Portfolio Performance

Our long-only “Librarian Capital” portfolio lost 3.9% in GBP (3.6% in USD) in January, 250 bps worse than the MSCI World index, our chosen benchmark:

Our performance since 2019, the year we started managing our portfolio full-time, as compared with MSCI World, other key indices as well as leading funds with a similar “quality” style, is as follows:

Our portfolio has outperformed its chosen benchmark and key indices under our full-time management. We were significantly ahead in 2019, but underperformed in 2020 from H2 onwards, finishing the year 150 bps behind. 

Compared to the two leading “quality” funds we track, we have been ahead of one but behind the other.

Performance Attribution

The top contributors and detractors during January are as follows:.

Portfolio Changes

During January we exited our holdings in Diageo (DEO) and Hargreaves Lansdown (OTCPK:HRGLF). Most of the proceeds were used to add to our existing positions in Charter (CHTR), Unilever (UL), Altria (MO) and Facebook (FB).

Our investment in Diageo began in July 2019 and resulted in a small loss of 4% (in GBP) after 18 months. While we continue to consider the long-term investment case attractive, we believe we can deploy the capital more profitably elsewhere. We were wrong in not taking action before the rapid price decline in March 2020 once COVID-19 has spread to the U.S. and Europe. Our exit price was 43% higher than the trough price reached then.

Our investment in Hargreaves Lansdown began in October 2020 and resulted in a gain of 16% in 4 months. Since 2019 we had made three separate investments in the company, each time generating a double-digit percentage gain in a few months. The investment case remains attractive in the long term, but we see more compelling opportunities elsewhere. After peaking in late January, the share price has now fallen 15%, partly due to one of the co-founders selling another £300m of shares in February.

Our top 10 holdings remained unchanged through January. These represented 68% of the portfolio's total value (including cash):

At month-end we had a total of 18 stocks in our long-only portfolio.

Separate from this portfolio, we have held a position in Swedish Match (OTC:SWMAF) through derivatives since September 2020. The gross value of this position is equivalent to just under 8% of our long-only portfolio. This brings the total number of stocks we hold across all portfolios to 19.

Our strategy continues to be one of holding high-conviction positions over long periods. We also consider prospective capital gains taxes when deciding whether to exit a position, sometimes accepting slightly below-target returns for tax reasons.

Cash rose to 6.5% of the portfolio at month end, compared to 4.2% the month before, primarily due to proceeds from share sales not yet fully redeployed. The figure was reduced to 3.2% in February.

Research Review

Our list of current research ratings on Seeking Alpha, and the stocks' performance up to the end of January, is shown below; we initiated a Buy rating on Alphabet (GOOG) late in the month:

Our inactive previous stock ratings are listed below:

About Librarian Capital: Librarian Capital is a long-only strategy that invests in global equities. The investment style is fundamentals-oriented, concentrated and long-term. The portfolio consists of 15-25 high-quality companies in the U.S. and Europe, usually held for multiple years. The portfolio has been in existence since late 2008, and is the main vehicle for my personal net worth.

A full archive of previous monthly updates can be found here.