International SIF: Wins, Losses + The Surprising Impact Of Exchange Rates

12th Mar '19 by Roland Head

4 comments 2989 reads

“Where did all the growth stocks go?” Editor Ben Hobson’s feature last week on growth strategies for subdued markets really resonated with me.

As I’ve commented before, my SIF strategy has really struggled in recent months. At one point, only one UK share passed all of my screening rules. Ben’s piece explains why many of the Guru growth strategies followed by Stockopedia have performed poorly in recent months, becoming unusually concentrated in just a few stocks.

I’m happy to be in such respected company. But there are signs of improvements. My screening results are gradually expanding. Unfortunately there still aren’t any stocks I can consider buying.

Instead, I’ve decided to bring forward this month’s coverage of my International SIF. This is a model portfolio that’s attempting to replicate the success of the UK SIF by investing overseas. So far, results have been poor. But I’m refining the portfolio’s geographical allocation and hoping to see some better results going forward.

This week I’m going to look at stocks due to be sold from the International SIF. I’m also going to revisit previous results to see how exchange rates have affected my returns so far. The figures may surprise you. They did me.

Stocks on the block

My trading rules for the International SIF mean that I buy and sell stocks in alternate months. February was a buying month, so March is a selling month. This means that I must review stocks held for 10 months or more. Four companies meet this criteria:

Ence Energia Y Celulosa SA (MCE:ENC) - The Spanish pulp mill operator has been a winner for me over the last year. Should I keep holding?
Tianneng Power International (HKG:819) - This Hong Kong-listed battery maker has been a poor buy. But a StockRank of 98 suggests things could improve.
Mytilineos Holdings SA (ATH:MYTIL) - A Greek industrial conglomerate with a broad range of interests.
Keller Group (LON:KLR) - This FTSE 250-listed groundworks specialist seemed like a good buy to me, but has fallen prey to classic sector problems.

Ence Energia Y Celulosa SA (MCE:ENC)

Original coverage 06/03/18

This £1.3bn pulp mill operator appears to have issued a strong set of annual figures recently. According to Thomson Reuters, net profit rose by 41pc to €129.1m in…

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(HKG:819)

How would you read into the latest allegations against Tianneng Power International?

I have close to 100% return on the stock, numbers still look solid, but with all creative accounting going on (Wirecard, Luckin Coffee etc), you get reluctant to hold onto such "winners". It has recovered since the news but I'm not sure if you should put any weight into that. Just curious how others would read into it.

Sell..Trim..Hold:)

Howard Adams

12th Mar '19

Hi Roland

Many thanks for taking a look at the FX effects on your international trades.

My international trades have been predominately US, but with some European, that is Euro denominated as well as local currency (European but non-Euro).

When I first tried investing internationally I expected some FX effects, but I (like you) was surprised at how large some effects could be (I note one of your US trades was over 9% effect).

The second point I encountered was just how rapidly FX effects could swing from being a positive/negative effect or visa versa. This has been quite noticeable around the movement of sterling during the Brexit period say against the US dollar, but in parallel this has also coincided with US dollar moves reacting to the China/US situation. These made for choppy times.

I think if an investing horizon is quite long term (and possibly quite a sizeable investment), then these FX effects might be acceptable risks for a particular type of investment i.e. where else will you find an Amazon?

But if investing is shorter-term and with smaller amounts then using a sterling-based account to access stocks in another currency, say US stocks, is quite a challenge IMO. For myself I am heading towards a Schwab US-dollar account.

Many thanks for your articles, always a good and useful read.

Regards
Howard

abtan

Thanks for the article Roland. Very interesting.

I've commented in the past on the success I've had buying into international companies, irrespective of trading fees and FX movements. I generally don't concern myself with FX movements as most currency movements are gradual and I try to diversify the markets I invest in to cancel out the impact of these movements.

However, in light of the current political situation in the UK and the inherent GBP weakness I made a conscious choice in the last 6-9 months to make no, or very few, international purchases despite a great desire to pick up foreign shares that I think are undervalued.

My rationale?

I honestly thought that the threat of a No Deal Brexit was over-hyped and that once a deal was made, whether a managed exit or a cancellation of Brexit entirely, there would be a sudden strengthening in GBP. And that would be my time to buy.

Of course, this is clearly only my opinion, and once all is said is done I'm not even sure it will have been the correct one if I have missed out on foreign shares that have increased significantly in value in the meantime. But I've been happy to sit on the sides and let my current portfolio run its course.

Cheers
A

Roland Head

abtan,

Thanks for your comment. I've always felt that FX effects are likely to be neutral over long periods, but I have never tried to quantify the effect of exchange rates before, so it was interesting to do.

My view remains that FX is a non-issue most of the time. But in special situations such as Brexit or when the Swiss Franc was devalued in 2015, FX movements can have a very significant impact.

Cheers,
Roland

Frank Olsen

23rd Jun '20

https://www.yicaiglobal.com/news/china-tianneng-power-rejects-fraud-claims-says-it-will-see-short-seller-in-court

International SIF: Wins, losses + the surprising impact of exchange rates

Stocks on the block

Ence Energia Y Celulosa SA (MCE:ENC)

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Roland Head

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