Global Portfolio outperforms MSCI index and has positive absolute returns

Tong's Value Investing Portfolio as of May 16, 2019
Tong Kooi Ong

The tides appear to have shifted once again for global stock markets. After fanning hopes for an imminent breakthrough on a trade deal for months, President Trump escalated tensions, with a trademark tweet, a couple of weekends back.

The US followed through by raising tariffs from 10% to 25% on some US$200 billion worth of Chinese imports, which were postponed from 1 March. It is also said to be preparing to levy taxes on the remaining US$300 billion plus of goods that are currently exempted. China, in response, raised tariffs on US$60 billion worth of US imports.

The unexpected turn of events had investors scrambling, sending stock prices around the world broadly lower.

Higher tariffs will hurt both the US and China’s economies and the domino effect will reverberate throughout the global supply chain. President Trump maintains that China will be paying the additional tariffs. In reality, the taxes will be shared by Chinese exporters, US businesses (importers) and US consumers. The proportion will differ depending on the products and relative bargaining and pricing power.

In the immediate term, however, investors are betting that Chinese manufacturers will bear the brunt of the trade war, in terms of reduced demand from trade diversion, which could also affect future investments in the country.

Chinese stocks were by far the out-performers in 1Q2019, when hopes were high that a trade deal was imminent, but turned big losers in May. The selloff also dragged down regional markets while US stocks have held up better by comparison.

Trade negotiations are continuing but it is anyone’s guess when, or if, another truce or deal can be struck. Should the trade conflict persists or worsens, I suspect we could see another divergence in global stock markets – with the US out-performing the rest of the world. This would be a repeat of what happened in 3Q2018.

The US economy is on a stronger footing, even though China is stabilising. GDP grew a faster than expected 3.2% in 1Q2019. Unemployment is at 50-year lows and wage growth is gaining traction as the labour market tightens. And as mentioned previously, household debt has been on a downtrend since the financial crisis. All these will go some ways towards helping consumers adjust to the eventual price increases resulting from the tariff hike, which will take a few months to filter through.

US corporate earnings too have been more resilient that initially expected. 1Q2019 earnings for the S&P 500 companies (with 90% having reported) contracted by just 0.5%, far lesser than the earlier projection of -4% before the results season began. Revenue was up 5.3% for the quarter, also higher than the previous estimate of 4.8%. Domestic-centric companies are reporting better earnings than those with global exposure, underscoring the relative economic weakness in the rest of the world.

Chat 1: Performance of Global Portfolio vs. MSCI World Net Return Index

Total returns for my Global Portfolio now stand at 5.6% since inception. The portfolio is out-performing the benchmark MSCI World Net Return Index, which is up 3.2%, over the same period.

The Global Portfolio has seen its fair share of volatility over the past year and a half. We have made mistakes and taken losses. At its worst, total portfolio value fell by as much as 20.3% in the immediate aftermath of the 4Q2018 global selloff.

A string of good investments and improved sentiment for global markets in 1Q2019 have turned the portfolio around. Our decision to dispose of DIP Corp, China Sunsine, Sunpower and Nine Dragons Paper appear timely as were our acquisitions of Malayan Flour Mills (for which we have already locked in gains), Builders FirstSource, Disney and Ausnutria Dairy. I will write more about the outlook for stocks in the portfolio next week.

I acquired 40,000 shares in one of Malaysia’s largest banks, CIMB Group Holdings Bhd, and pared my holdings in Ausnutria Dairy by half, netting a gain of 61.5%. With these latest transactions, my Global Portfolio is now about 75.8% invested.

I am looking to invest the balance of the cash holdings, possibly in the US market. As explained above, we believe US stocks would outperform in the near to medium term. Currently, the portfolio is about 54.8% invested in US stocks and 31.9% in China-based companies, at prevailing market values.

Potential fallout from trade uncertainties between the US and China kept Asian stock markets on the back foot. The Bursa Malaysia continued to see selling pressure from foreign funds, with net outflows totalling some RM3.3 billion in the year-to-date. The FBM KLCI is the worst performing index in the region this year.

Stocks in my Malaysian Portfolio ended the week flattish, mirroring weakness in the broader market. Total portfolio returns now stand at about 48.1% since inception. This portfolio continues to outperform the benchmark index, FBM KLCI, which is down 12.6% over the same period, by a long way.

Performance Comparison Since Inception (%)

• Tong's Value Investing Portfolio
• FBM KLCI

SHARES HELD	QUANTITY	AVERAGE COST	COST OF INVESTMENT	CURRENT PRICE	CURRENT VALUE	GAIN / (LOSS)	GAIN / (LOSS)
SCGM BHD	11,066	1.729	19,190.7	0.910	10,070.1	(9,120.7)	(47.5%)
AJINOMOTO (M) BHD	1,500	11.813	17,720.0	17.520	26,280.0	8,560.0	48.3%
Y.S.P.SOUTHEAST ASIA HOLDING	10,500	2.413	25,340.0	2.560	26,880.0	1,540.0	6.1%
FORMOSA PROSONIC INDUSTRIES	18,000	1.440	25,920.0	1.750	31,500.0	5,580.0	21.5%
POH HUAT RESOURCES HOLDINGS	13,000	1.470	19,110.0	1.520	19,760.0	650.0	3.4%
SUPERLON HOLDINGS BHD	15,000	1.289	19,327.5	1.030	15,450.0	(3,877.5)	(20.1%)
CIMB GROUP HOLDINGS BERHAD	6,000	5.140	30,840.0	5.130	30,780.0	(60.0)	(0.2%)
Total			157,448.2		160,720.1	3,271.9	2.1%
Shares bought
No transaction.
Total shares held			157,448.2		160,720.1	3,271.9	2.1%
Shares sold
No transaction.
Cash Balance					135,453.4
Realised Profits / (Losses)					92,901.6
Change since last update May 9, 2019
Portfolio							0.3%
FBMKLCI							(1.2%)
Portfolio Returns Since Inception			200,000.00		296,173.5	96,173.5	48.1%
Portfolio Returns (Annualised)							10.4%
Portfolio Beta							0.906
Risk Adjusted Returns Since Inception							53.1%
Performance Comparison	At Portfolio Start		Current	Change	Relative Portfolio Outperformance
FBM KLCI	1,829.7		1,599.2	(12.6%)	60.7%
FBM Emas	12,700.4		11,297.7	(11.0%)	59.1%

Footnote: 
*Current price is as at May 16, 2019. 
*Portfolio started on Oct 10, 2014 with MYR200,000. 
*This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks.

STOCKS SOLD IN THE LAST 12 MONTHS (Currency: MYR)

SHARES SOLD	DATE BOUGHT	DATE SOLD	QUANTITY	AVERAGE  COST	COST OF  INVESTMENT	PRICE SOLD	SALES  PROCEEDS	GAIN / (LOSS)	GAIN / (LOSS)
THONG GUAN INDUSTRIES BHD	12-Dec-16	08-Dec-17	5,000	4.243	21,215.0	4.100	20,500.0	(715.0)	(3.4%)
KERJAYA PROSPEK GROUP BERHAD	12-Jan-17	15-Mar-18	11,000	1.025	11,280.0	1.540	16,940.0	5,660.0	50.2%
KERJAYA PROSPEK GROUP BERHAD - WARRANTS B 2018/2023	08-Mar-18	15-Mar-18	3,000	0.000	0.0	0.330	990.0	990.0	-
LUXCHEM CORPORATION BHD	30-Aug-17	15-Mar-18	16,500	0.732	12,072.5	0.720	11,880.0	(192.5)	(1.6%)
WILLOWGLEN MSC BHD	14-Dec-17	22-Mar-18	20,000	1.010	20,200.0	1.260	25,200.0	5,000.0	24.8%
MUAR BAN LEE GROUP BERHAD	26-Oct-17	22-Mar-18	13,500	1.240	16,740.0	1.170	15,795.0	(945.0)	(5.6%)
CHOO BEE METAL INDUSTRIES BHD	07-Sep-17	16-May-18	8,000	2.190	17,520.0	2.440	19,520.0	2,000.0	11.4%
CHOO BEE METAL INDUSTRIES BHD	07-Sep-17	21-May-18	8,000	2.190	17,520.0	2.300	18,400.0	880.0	5.0%
SUPERLON HOLDINGS BHD	01-Dec-17	21-May-18	6,000	1.175	7,050.0	1.550	9,300.0	2,250.0	31.9%
OKA CORPORATION BHD	14-Dec-17	28-Jun-18	12,000	1.541	18,488.0	1.270	15,240.0	(3,248.0)	(17.6%)
SUPERLON HOLDINGS BHD	01-Dec-17	28-Jun-18	6,000	1.175	7,050.0	1.210	7,260.0	210.0	3.0%
WILLOWGLEN MSC BHD	14-Dec-17	28-Jun-18	100	0.500	50.0	0.540	54.0	4.0	8.0%
PANTECH GROUP HOLDINGS BHD	17-May-18	02-Aug-18	43,000	0.580	24,940.0	0.560	24,080.0	(860.0)	(3.4%)
KERJAYA PROSPEK GROUP BERHAD	10-Jan-17	06-Sep-18	11,000	1.020	11,225.0	1.400	15,400.0	4,175.0	37.2%
LUXCHEM CORPORATION BHD	25-Aug-17	06-Sep-18	16,500	0.717	11,825.0	0.655	10,807.5	(1,017.5)	(8.6%)
HOCK SENG LEE BHD	19-Apr-18	06-Sep-18	14,500	1.520	22,033.0	1.370	19,865.0	(2,168.0)	(9.8%)
GENTING MALAYSIA BERHAD	06-Sep-18	28-Nov-18	3,800	5.070	19,266.0	3.060	11,628.0	(7,638.0)	(39.6%)
TOP GLOVE CORPORATION BHD	06-Sep-18	06-Dec-18	3,600	5.500	19,800.0	6.030	21,708.0	1,908.0	9.6%
MAH SING GROUP BHD	28-Jun-18	14-Jan-19	19,000	1.005	19,095.0	0.930	17,670.0	(1,425.0)	(7.5%)
WILLOWGLEN MSC BHD	14-Dec-17	14-Feb-19	19,900	0.500	9,900.0	0.464	9,236.0	(714.0)	(7.2%)
SAM ENGINEERING & EQUIPMENT	14-Jan-19	14-Mar-19	3,000	7.380	22,140.0	7.900	23,700.0	1,560.0	7.0%
PANASONIC MANUFACTURING MSIA	16-May-18	18-Apr-19	600	26.157	17,182.0	37.870	22,722.0	5,540.0	32.2%
HONG LEONG INDUSTRIES BHD	14-Dec-17	18-Apr-19	2,000	9.126	18,251.0	10.640	21,280.0	3,029.0	16.6%
MALAYAN BANKING BHD	16-May-18	18-Apr-19	3,000	10.250	30,750.0	9.130	27,390.0	(3,360.0)	(10.9%)
ECO WORLD DEVELOPMENT GROUP BERHAD	28-Jun-18	18-Apr-19	15,200	1.235	18,772.0	0.920	13,984.0	(4,788.0)	(25.5%)
DIALOG GROUP BHD	06-Sep-18	18-Apr-19	5,700	3.452	19,676.4	3.110	17,727.0	(1,949.4)	(9.9%)
HARTALEGA HOLDINGS BHD	28-Mar-18	18-Apr-19	11,000	4.610	50,710.0	4.750	52,250.0	1,540.0	3.0%

A Note to Readers

It is my pleasure to share with you my Value Investing Portfolio. However, I must emphasize that it is by no means a recommendation or a solicitation or expression of views to influence you to buy or sell any stocks. I am just sharing openly on what I am doing with my stock portfolio.

Further, I like to remind all investors that investing is not just about the profits or returns. You will inevitably suffer stock losses too. You need to understand your own investment objective, risk appetite and the amount of loss you can afford to bear. So, while many investors talk only about absolute returns, I am also sharing the computed risk-weighted returns of my portfolio.

Tong Kooi Ong