Thursday, December 31, 2015

Year End 2015 Portfolio Review

2015 was a good but frustrating year, most of my gains were front loaded in the first quarter and since then I've been treading water.  Owning several big positions in real estate companies wasn't the best positioning in a year when the Federal Reserve has finally began to tighten rates.  Value added spinoffs and NOL rich companies drove my returns this year.  No cash was deposited or withdrawn from the account and to reiterate the overall portfolio goal is to generate a 20% IRR over the long term.
Below is a breakdown of the attribution of each holding during the year to my performance, which is interesting at least to me, the grayed out holdings were closed during 2015:
Miscellaneous Position Comments:
  • Graham Holdings: This was my biggest loser for the year and I ended up selling mainly for tax reasons around $550.  I made a similar mistake as with News Corp the year before, Graham is a cheap pile of assets within a family run holding company structure, nepotism, etc - basically a value trap sum of the parts story.  Eventually the value might be unlocked but you have to wait for the next spin/asset sale and enter it at a more substantial discount than I did around $700.  Now might be that time for those new to the name, I could see it being a beneficiary of the January effect, you're basically getting paid to take the for-profit education/Kaplan segment at today's prices.
  • Rentech: My other loser pick that I acquired this year, with Rentech I just went outside of my swim lane, didn't fully understand the business or the challenges it faced.  Plus, I was skeptical of the MLP structure to begin with but hoped the market would hold up long enough for Rentech to dispose of their yieldco MLP and convert the stub to an MLP, it obviously didn't.  Thankfully, I sized this one small from the beginning and exited before things got really bad for the company.
  • Computer Sciences/CSRA: The original plan on this spinoff was to sell CSRA and hold CSC in hopes that it would be sold to a competitor or private equity.  But as the spinoff happened, CSRA (the government services business) fell seemingly everyday until it hit around $26 and has since bounced back somewhat.  Another curious thing that I haven't fully gotten answered, none of the tax basis went over to my CSRA position, so I called an audible and sold the CSC piece (free/unearned tax loss as it stands now) and will hold onto CSRA as it's the better business and despite the rebound still substantially undervalued compared to its peer group.  The peer group has traded up a bit since the November spin, now averaging around 10x EBITDA, which would value CSRA at $38-39/share and that could move higher as they realize the merger synergies with SRA and use free cash flow to delever their balance sheet.  There's been several similar situations that have worked out well in the government services space; CSRA is one of my favorite ideas for 2016.
  • Par Pacific Holdings: I'm working on a more comprehensive PARR update, but if one isn't an energy expert (me) and still wants to find a way to participate in the industry's distress, PARR is a perfect way to do that.  I've been trying to figure out who the eventual winners will be in both energy and mining, every few days it seems like another company is announcing asset sales, a good question to ask is who will be on the other side of these forced sales?  One such buyer is PARR, they've raised capital, have a strong sponsor/deal maker in Sam Zell's investment arm, and a cost of capital advantage due to their large NOL.
Other Random Thoughts:
  • I hate being in battleground names, which American Capital (ACAS) has become, it's just usually not worth the effort as there are shorter hurdles to jump.  So I hope that someone (Ares? Fortress?) takes out ACAS one way or another and bails me out.  My official stance is I like Elliott's involvement and how quickly ACAS announced another strategic review, think it gets to ~$19, but it's a dicey time for high yield and risky leverage loan assets.  I'm preparing for this to be another mistake.
  • MMA Capital Management completed their GE tax credit portfolio acquisition and posted an investor presentation to go along with it (more detailed than I've seen from them in the past).
  • I participated in a couple of the big exchange offers this year (GE/SYF and DOW/OLN, missed DHR/NTCT), going to do more of that (and other small opportunities, CVRs, etc) next year as it might be another tough one for the broad market indexes, makes sense to take some small wins here and there.
  • I've been on the lookout for further dislocations in the credit markets, especially in vehicles that gave retail investors a way to invest in illiquid hairy high-yielding assets.  One that I've mentioned in the past that's starting to get interesting to me is Oxford Lane Capital Corp (OXLC) which is a BDC-like company that almost exclusively owns CLO equity.  CLOs unlike BDCs don't mark-to-market their assets and thus are less at risk for being forced sellers when markets decline, if credit worries stay contained to the energy sector, CLOs should continue to perform well despite their current drop in price.  No position yet, things probably get worse in these leverage loan vehicles, everything takes longer than you'd expect to play out.
  • Another idea I've been researching is Baxalta (BLXT), its a pharmaceutical company that's focused on rare diseases like Hemophilia, they've had a couple key drug approvals recently and look cheap on a forward P/E basis.  Additionally, Shire (SHPG) has been stalking the company since it's spinoff from Baxter this past summer, one of the reasons for the deal is Baxalta is a U.S. taxpayer and since Shire has already inverted they could remove some of Baxalta's tax burden.  
Current Portfolio:
Thank you to everyone for reading and happy new year.
Disclosure: Table above is my blog/hobby portfolio, its a taxable account, and a relatively small slice of my overall asset allocation which follows a more diversified low-cost index approach.  The use of margin debt/options/concentration doesn't represent my true risk tolerance.


  1. Congratulation for squeezing out 16.9% in 2015 & wish you all the best for 2016.

  2. Have you looked into kcap, ticc, and THL credit? They are similar companies that invest in CLO's and have high yields.

    1. I loosely follow all the BDCs, have a general disdain for the industry, but that's a good watchlist of similar companies. I'm waiting for some real distress, not just prices falling in anticipation of it which I think is where we are now. Also waiting for the ACAS situation to play out a bit more before getting too heavy into these. Thanks for the comment and happy new year.

  3. Great blog and very interesting posts you put up, thank you for all of them. Would you mind sharing how you get your performance attribution per individual securities? Do you do it manually or get it from your broker? If manually, is there any guide you could give? Would love to do that for own portfolio too, thanks!

    1. I just use Excel, it's mostly manual, no great insights in how to make it more automated but I just link a table to my beginning of year portfolio and let Excel do the rest. I'd share it, but everything's on my work computer and we're restricted from Google Docs and all the rest. Thanks for the comment and happy new year.

  4. Hi - Noticed HHC as a decent sized holding of your's. I say this without trying to be "cheeky" or even sarcastic. Have you not heard about the bubble that has formed in NYC commercial real estate? I live right outside NYC and keep hearing BS arguments like "there is only one Manhattan" blah blah blah. Bubbles are bubbles, no matter where they form and bubbles eventually burst, all of them.

    1. Fair comment, I don't have a great grasp on NYC commercial real estate, but I do agree that anything people say will never happen like "there is only one Manhattan" is a dangerous line of thinking.

      Do you have specific concerns about the Seaport? It appears HHC has dialed back their plans of building adjacent mixed use towers around the Seaport after tiring of fighting the local community there, so that de-risks HHC's NYC risk a bit. I'd be curious to hear your thoughts on the viability of the Seaport? Will locals go there or will it just be a tourist trap?

    2. Well, I am not going to pretend to know the story down to that level of detail but I do know that SSP was a good part of SOP value and and then Woodland's is in Houston and I can only imagine what must be going on there in the aftermath of energy crash. I assume they are still involved in that project?

      Back in 2005, I was in a meeting with a bunch of activist investors - we were all in a proxy contest. I recall one of them (I think he was based in Israel) turn and say "uh, we don't to be long any real estate in the U.S." That turned out to be a very smart comment. I think I can say today "I don't want to be involved in any commercial real estate in the U.S." Cap rates were ridiculous, we all knew it and here we are now.. the unraveling has just begun. Best of luck though.

    3. At this point I'm more worried about Houston, they have built a lot of commercial real estate, which as you point out is overheated, and they're in a bad market there. Most of their development assets are long lived, there's going to be some ups and downs, but I think over a long time period they'll create some value. I like management, their warrants (which they paid out of their pocket for) are expiring in a couple years, I'd guess we see some additional value creation between now and then. Thanks for the comments.