YWR 2024 Performance Review
Accountability Day!
We review 2024 performance on actual YWR positions, review the under performers, and see what looks good for 2025.
First, a public service announcement regarding an incident which happened over the Christmas break, and offended members of the YWR community.
To all skiers in Colorado and Utah I apologize for my unfair comments in the YWR Ski Edition. They were not well articulated and did not respect the need for skiing diversity. I am reflecting on my own issues and working towards self improvement. Thank you for your understanding.
Dirty Dividends
We gave up our outperformance in Q4 and ended 2024 + 20%. Still, 2 good years and I’m happy with the results.
Despite 2 years of +20% performance the overall portfolio valuation is still attractive with a 2025 P/E of 7x and a 5% divided yield.
Turnover is almost nonexistent. I haven’t sold anything. It’s a bit like Berkshire Hathaway, I take the dividends from the under performers to fund new things (Who am I ETF?).
There are too many 1%-2% positions. Over 2025 we will reinvest dividends into HKEX and iShares Korea to build these up to 5% positions. This is part of our Asia pivot.
Underperformers:
Banco Santander: Hasn’t done much since February 2024, but I love the bank. The results have been steadily growing, and I love the valuation. The set-up looks good for 2025.
Total & BP: $70 oil and $2 gas have been a headwind for Total and BP, but there is a lot of upside for gas prices (The Bull Market for Gas). Between the two I really prefer Total. Patrick Pouyanne has figured out how to combine renewables, with gas fired power and trading (The Future of Power). Meanwhile, BP is muddling along. CEO Murray Auchincloss is kind of doing the right things (focusing on cashflow), but doesn’t really have a view on where things are going the way Pouyanne does. That said, investors think BP over did it on the share buybacks ($14bn) and the balance sheet has come into question, so BP shares will react very positively to a move up in US gas prices. Marry Total, but BP for the US gas sensitivity.
Glencore: Copper prices and coal prices are down, so Glencore is dead money. Glencore is also on the sidelines through July 2026 as they use their cashflow to pay down the Teck Coal acquisition. Longer-term I like that Glencore keeps building up the mining-refining-trading business model. Mining and energy companies are figuring out that this is how you get the network effects and a higher ROE. And you see it in the guidance for Glencore’s 2024 trading results which are now in the $3-3.5bn range (previous high end was $3.2bn). I’ll just stick with it, but probably reinvest the dividend into HKEX.
Mercedes Benz: This has been a bad call by me. We still haven’t seen a big bounce in car sales in the US and Europe despite the continually ageing car fleet. In hindsight I think the car companies raised prices too much coming out of COVID. They saw the prices people were paying for used vehicles, plus the general zeitgeist over higher prices for everything, but went too far. Now with higher interest rates on car loans the auto industry can’t grow sales. I also didn’t see the absolute train smash for foreign car companies in China. This has been the bigger problem and it isn’t because of the Chinese economy. In China foreign cars look like dinosaurs.
Strategically, I like that Mercedes is opening an R&D centre in Shanghai to make sure they stay competitive in what looks to be the future market for auto technology and autonomous driving. On the negative side I worry they are getting boxed into a small niche of luxury cars. I also would like to see a robot strategy like with Hyundai.
2024 results for Mercedes will be terrible(9/share down from 13), but they still have EUR 28bn in net cash. My guess is they stop the share buyback but we still get EUR 5/share in dividends which we will use to buy something else like EWY.
Vinci: The stock has done nothing, but I do love these guys. I love that when I drive around France, or fly out of Gatwick or Madeira Airports I am paying myself. Behind the scenes Vinci continues to take the cashflows from French tollroads and reinvest into global airports (Edinburgh) and tollroads in other countries (US, Czech Republic). Airport revenue growth has been +16%.
The two negatives in 2024 have been weak revenues in global construction and their recent Cobra IS acquisition. Vinci has also been hit by a one-off tax in France on long distance travel and will probably get hit by another proposed tax in 2025 on large French corporates. Overall, I like Vinci. I like the strategy and how they keep accumulating infrastructure assets, plus the Vinci Energies business is under appreciated by the market (capital markets day presentation). I’ll reinvest the 2024 dividend into more shares.
Cash Dragons
It was a bumpy year, but we made money in China. The performance was mostly from Tencent and Alibaba. Baidu has been a dog (which is also their logo).
Unlike Dirty Dividends the Cash Dragons portfolio has more of a growth tilt. I’m trying to take a multi-year view on this region and allocate to businesses which can develop network effects and take advantage of the future growth (tech, exchanges). The negative is the portfolio yield is much lower (1.3%) so we don’t get a nice stream of dividends to reinvest. Tencent, Alibaba, Baidu and LVS are buying back shares though.
Underperformers
Baidu: EPS is growing, but revenues aren’t. Baidu seems to be leading in AI technology and autonomous driving, but can’t grow cloud and AI revenues enough to offset the decline in paid search. I keep thinking this is a big warning sign for Google.
In China there is a trend towards advertising through influencers, rather than search engines. There is also a headwind from AI search results, which are now 18% of Baidu search results. Users don’t want a link, they want the answer. It’s great for users but companies don’t want to pay to advertise on search engines if end users only see the AI summaries.
There is also an increasing narrative that Baidu is early on new technologies, but falls on their face when it comes to execution. A Chinese version of Charlie Brown.
I’m going to stick with Baidu and hope they figure out the new AI monetisation model. To some extent I think many businesses around the world will go through this phase. The valuation is 9x earnings and they have $10bn in net cash for a company with a market cap of $29 billion. I am keeping a close eye on Baidu for any sign of revenue traction in AI or autonomous driving.
Overall YWR Allocation
I get asked how much I allocate to the different YWR strategies, so here is the overall liquid asset allocation at year-end.
Have a good rest of the week.
Erik
Let's add some spice to the portfolio. Take 1% either from S&P500 or treasuries and add it to bitcoin.
I see, you still don‘t like to publish the cost base for the stocks in these portfolios but honestly don‘t understand why!
The Dirty Divy as well as the cash dragons is almost zero US - Why do you benchmark these against S&P 500?
Your total allocation looks different from the two portfolios - Is this because its just a few additional single positions like Tesla +1 or do you have portfolio that you simply don‘t publish?
Have a good and successful 2025 and cheers from sunny Spain!