Home' Trinidad and Tobago Guardian : October 4th 2015 Contents One of the fundamentals of
building an investment port-
folio is acquiring positions
in a wide range of invest-
ments and having exposure
to a reasonable assortment
of industries; this is commonly referred to as
having a diversified portfolio, which rationale
is expected to build value over the medium
to long term.
Having created such a portfolio over a num-
ber of years, it is usually recommended that
it should be re-balanced periodically. Some
argue that this rebalancing exercise should be
done at least annually, while others take a
more holistic and slower approach, looking
for major economic and political changes to
justify their action or recommendations.
By sticking to a fixed annual schedule the
investor may lose out on a unique opportunity
that emerges during the interval. On a cau-
tionary note, excessive trading corrodes retail
investor s returns.
The second approach tends to look at global
and local situations that can seriously influence
investment outcomes and evaluate how dif-
ferent industries or sectors can gain or lose
from such trends or developments.
Recent possible trigger events
We can choose from any number of recent
local and international events to start re-posi-
tioning our portfolios.
One that has been in constant review over
the past year or so is the international price
of oil and gas. Another trigger could be the
divergence of interest rates on the local versus
the international (USA and Europe) markets.
Staying on the local front, we have a recent
change of government, the TT NGL IPO as
well as the Sagicor and TCL bond issues.
What will tomorrow s budget signal to spe-
cific industries? Will any part of the CL Finan-
cial /Clico resolution plan become clearer?
How will the Volkswagen "diesel emissions
trickery" (which apparently has an easy fix)
affect its local dealer, Best Auto Ltd, in which
Massy Motors has a 50 per cent stake? How
will the mass migrations into Europe impact
jobs, investments and growth on that conti-
Other readers will have their pet focus and
theories on other local or international issues
that are close to them.
The theoretical portfolio
In our sample portfolio above our investor
seems to have done reasonably well as its value
advanced to $725,000 from $500,000 over
the particular time horizon. This is a gain of
45 per cent.
Assuming that these investments are local,
over the same time frame, how well did the
local benchmark perform?
Did the portfolio beat the benchmark or
Were the investor s goals capital appreciation
or income growth?
More precisely, given the investor s objectives,
how satisfied is s/he about the returns or gains
Investment 1 has achieved a huge appreci-
ation of $150,000 or 150 per cent. What are
the consequences of this strong appreciation?
First, that single investment now accounts
for almost 35 per cent of the portfolio value
versus 20 per cent previously. Is this too much
exposure to one investment or industry?
Have the dividends kept pace with the price
appreciation? Or, were there special circum-
stances that drove the price upward?
Selling a portion of this investment could
reduce the volatility of the fund to any price
declines in that particular holding. However,
we now have a new problem; how to re-invest
the proceeds to help keep us on course with
our overall objectives.
Are there sufficient "undervalued" invest-
ments that would attract our attention and
keep us on course with our goals?
Investment 2 has appreciated by 37.5 per
cent and its percentage of the total portfolio
has declined modestly to 15.17 per cent versus
16 per cent originally. On the surface, there
appears to be no compelling reason to sell this
Investment 3 may cause us to ask more
searching questions. Its percentage of the total
portfolio has declined from 24 per cent to 17.2
per cent while its price has appreciated only
Is income from this source adequate? Are
there special factors holding it back? Is the
industry going through a period of change or
Investment 4 has appreciated by 50 per
cent and its share of the total portfolio has
risen marginally. Are these factors sufficient
to justify our continuing to hold this share?
Are there any storms brewing in that industry
that could slow its growth or restrain its prof-
Investment 5 has contracted to two per cent
of the portfolio from the original 10 per cent.
Were there peculiar reasons that caused this
share to decline by such a large percentage?
Is it worth keeping and fretting about? Does
its current low price present us with an oppor-
tunity to consider increasing our holdings and
thus lowering our average cost?
Without knowing additional details about
the five investments it is difficult to make any
constructive statement or meaningful recom-
mendations. Let us turn now to more concrete
Some practical trades
We will now describe a series of trades that
were executed recently on the local exchange
and provide some explanations for same.
Similar to investment 1 above, the huge
appreciation in the price of Angostura Holdings
shares has caused the total value of our
investor s holding in this particular share to
comprise an unacceptably high portion of his
portfolio; this has encouraged the investor to
consider selling part of his holdings. It is also
the only way to crystallise significant capital
Another factor that influenced this decision
is that he feels that the current price of $14.00
gives him a comfortable profit margin of $8.57
per share. Based on his average cost of $5.43,
this represents a percentage gain of more than
157 per cent.
He also believes that price already captures
the "special receivable" of about $4.78 per
share ($984.6 million) that remains due from
its parent, CL Financial. He is neutral as to
the re-alignment of ownership arrangements
that are also outstanding. Finally, the current
dividend yield of less than 2 per cent is becom-
ing less attractive.
Prior to the execution of the AHL sale, our
investor had already identified three companies
in which to buy shares; he currently owns
shares in all of them.
In one case, his average cost declined. In
another instance, his average cost increased
marginally, but still remained comfortably
below the current market price. In the third
transaction, the average cost also increased
but remained lower than the market price.
These companies are: Trinidad Cement Ltd
(TCL), GraceKennedy Ltd (GKC) and Agostini s
What were his justifications for adding these
shares to his holdings?
In the case of TCL, he viewed this as a com-
pany in "turnaround" mode. The injection of
fresh equity, mostly from Cemex, combined
with the finalisation of new debt arrangements
has breathed new efficiencies, possibilities and
flexibility into the company. Also, there is a
reasonable expectation that dividend payments
will resume in 2016 or 2017.
TCL s third quarter results, which should
be released by early November, will provide
with us with more concrete guidance about
its short and medium-term prospects. Another
influencing factor was the recently reported
large purchases of TCL shares by some of its
directors; normally, this is a sign of confi-
Turning to AGL, those shares are often dif-
ficult to obtain...with good reasons. The com-
pany is conservatively well managed and its
shares are not widely held.
Despite one-off costs of $8.8 million, its
EPS edged up to $1.05 from $1.04 for the nine
months to June 2015. For the entire 2013 fiscal
period, its EPS was $1.06.
Over the past year the company has refi-
nanced its debt at favourable rates. Some of
the additional funds borrowed have been used
to fund new acquisitions, including the creation
a new joint venture with Barbados Goddard
Enterprises Ltd. These initiatives have already
started to bear fruit.
AGL s fiscal year closed last Wednesday and
we expect to have audited results available
before Christmas, along with a recommen-
dation for a higher final dividend.
Both GKC and AGL share a common direc-
tor, Mr Joseph Esau. Despite profit challenges,
GKC has increased its dividends in 2015.
Its third quarter results are expected to
include the proceeds, including some profit,
from the sale of its 58.1 per cent stake in Hard-
ware and Lumber Ltd. Those receipts should
give GKC additional leeway to manage its debt
and expand its operations.
GKC s shares offer investors an attractive
dividend yield of 3.8 per cent while it continues
to trade at about 40 per cent below its intrinsic
Despite having sold some of his AHL shares,
his remaining holdings will allow him to benefit
from any future share price appreciation. Per-
haps, the price at which he bought the addi-
tional shares in TCL, GKC and AGL may have
been higher than anticipated.
More often than not, investors have to make
decisions based on imperfect information.
Sometimes, in hindsight, we might regret sell-
ing or buying at a particular time and price.
Does anyone recall buying Sagicor at $21?
(Hooray to the sellers!)
Over time, additional questions will be posed
and answered. Did the extra dividends from
the new acquisitions compensate for the lost
dividends from the sale of AHL? Are any of
the companies, in which additional shares
were acquired, now in the dog house?
Would returns have been better if our
investor had done nothing? Stay tuned, as we
continue to monitor the local and regional
OCTOBER 4 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG11
Investor's rebalancing act
More often than not,
investors have to make
decisions based on imperfect
information. Sometimes, in
hindsight, we might regret
selling or buying at a
particular time and price.
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