Since our last commentary, the Covestor Absolute Returns portfolio has performed well on an absolute basis, in essentially a very accommodating market environment. At the same time, it has performed poorly on a relative basis. Nonetheless, our portfolio positioning remains largely unchanged.
During the preceding months, we sold positions in Blackstone (BX), United Online (UNTD) and Advanced Emissions Solutions (ADES). In each case, the position was sold because of a change in our estimation of fair value.
In some cases, this decision would appear to have been taken prematurely. However, in my opinion, the best strategy available to the value investor is to base buying and selling decisions on your estimation of a stock’s current value.
Regarding a specific holding, the proposed takeover of Saks (SKS) became a reality when the company reached an agreement with dissenting shareholders on the acquisition by Hudson’s Bay. The bidding war, hoped for by some shareholders, never materialized, and the portfolio achieved a modest gain on its holding.
Another portfolio holding, Moduslink (MLNK), reported modestly improved earnings results, suggesting progress in a planned operational turnaround which the market appears to like. (Earlier this year, the company restated several years of results due to accounting errors.) The less optimistic view is that operational improvements in existing business lines are likely to be less significant than it may first appear. The company expects to grow via acquisition in order to utilize significant tax loss carry-forwards. The investment case then would appear to hinge on the company’s ability to successfully acquire businesses at a reasonable price in what may be a less than ideal market environment.
Despite what I consider as a less-than-optimal market conditions, the Absolute Returns portfolio will continue to seek attractive opportunities to deploy capital.
The investments discussed are held in client accounts as of October 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.