Inaugural Newsletter

Professionally managed investment portfolios routinely provide their investors with regular updates. In line with this practice, this substack will deliver timely communications on the performance, strategy, and key developments of its activist-focused portfolio. These updates aim to keep our readers (an in the future our investor base) well-informed and engaged.

1. Update

It has been one helluva couple of months. Historians in the future would probably look back and laughed at the stupidity of it all. Some lunatic President launched a tariff charade, caused the markets to crash and then chickened out. Markets, being markets, retracted almost all the losses as if nothing happened, only to realize, something did change and recession is coming.

This is where we are now.

For the record, since the start of the year, S&P500 returned 1.6%, the Nikkei -4.1% and the STI 0.2%. But that masked the volatility that happened during the tariff tantrums were markets fell almost 20%, causing widespread panic. This author blogged about how this marked a major turning point in global world order. De-globalization will tear trade, economies and markets apart. Well, that’s the thing with prediction, so far, I’m wrong. Although investors have been warned.

If Trump’s first hundred days is any indication of how things gonna continue, then we should all fasten our seatbelts. This is not the time to go aggressive. Tread carefully. Buy less and sell more. Hold more safe assets like cash or gold. Maybe even Bitcoin. Meanwhile this portfolio has more or less simply tracked markets this year with many safe, strong free cashflow names.

To spice things up a little, I have decided to do a pivot and focus on researching about shareholder activism which could become big in this part of the world. As mentioned in early posts, activism has been around but there was a big revival around the 1980s stretching into the 2000s, starting with corporate raiders and vulture funds with less sophistication.

As activism progressed, we now have reputable, skilful players such as Elliott and Starboard alongside big famous individuals like Bill Ackman of Pershing Square and Nelson Peltz of Trian Partners. We also have a lot more campaigns. Last year, there were over a thousand campaigns with the US having more than half of those.

Activism has also spread out globally, expanding into Europe and more recently Japan. Asian focused activist investors have gained prominence and names such as ValueAct, Oasis and Murakami are popping up regularly in financial newspapers. As such, our portfolio will also focus more on activism in Asia, especially Japan, now the hotbed for shareholder activism.

However, since strong, steady compounders with high free cashflow is still a profitable strategy, we will also continue to research these names such as Live Nation (LYV) and Fortinet (FTNT). Interestingly, the two strategies: activism and free cashflow usually overlaps. More than 50% of the original portfolio names had activist involvement and we shall continue to cover them.

2. Outlook

Looking into the next 12 to 18 months, I would continue to remain cautious. We had a good bull run which more or less started after the GFC. So that’s a good 16 years since 2009, when the markets bottomed after the GFC. We were due for some sort of big correction, according to Jeremy Grantham (his well-written research piece: Waiting for the Last Dance), prior to COVID-19. But the pandemic hit and the subsequent massive liquidity injection by global central banks caused the markets to go up even more.

Miraculously, the S&P500 hit all time high at 6,100 this year and global markets followed up north in tandem. Then everything collapsed. Thanks to Trump’s tariffs. Then he chickened out and yes, markets did rebound quickly but earnings momentum has weakened and valuations are still steep. Hero stocks like Nvidia and Tesla are not hitting new highs. The probability of markets going up further definitely seemed lower than they going down from here.

Japan, the land of activist opportunities

Again, it’s hard to predict anything. So don’t bet on my take. Fall back on valuations and idiosyncratic positive factors. That’s activist stocks in Japan! The Nikkei is not expensive and Japan activism will not be too much affected by global markets. 40% of Japan still trade below book and so are the activist names highlighted on this substack: Mandom, NTV and Okamoto. We will be discussing more names.

2. Portfolio

Since inception in Jun 2023, the portfolio has returned 10% which unfortunately has underperformed global markets. The largest contributors were Gold (up 64%), Live Nation (up 70%) and Deutsche Borse (up 54%). Although Alphabet went up 86% and Fortinet rallied 103%, absolute dollar returns were lower because yours truly did not size it big enough. This is an art and I still need to hone this better despite decades of experience. As the saying goes, it looks simple but it’s really not easy.

The detractors were Bayer (down 55%) and Diageo (down 26%). Both have done really poorly and hence target-locked by activists. Hopefully things can turn around and we regain some of that underperformance. Both names now trade cheaply and it might be timely to add. But first, we need to do our homework and provide a research update.

In the next 12-18 months, the Japan activist names would be the main focus. Currently, all three portfolio names are showing more than 50% upside. The goal would be to add another 2-4 more Japan activist names to capture these idiosyncratic alpha opportunities and generate better returns.

Besides Japanese stocks, Thai Beverage and Warner Bro Discovery are the two names showing >50% upside. Thai Beverage needs Chineses tourists to start travelling to Thailand while Warner Bro Discovery remains a high conviction bet that it could transition from its dying cable business to become a content monetizer and its free cashflow generation would save the day.