Month: February 2016

Weekly update – Feb 12, 2016

candidcurious Quantitative trading

CTA market entry/exit levels: marketlevels_0212

Interesting observation – Almost two-thirds of all markets are at “all in” mode, meaning that all models are either fully long (fixed income, gold) or fully short (commodities). You may wonder how could CTAs would buy more of their longs and sell more of these shorts? I know of two ways – if new money is allocated to the CTA space or if market volatilities were to decrease. It’s important to note that most CTAs utilize some form of volatility targeting which means they reduce position sizes as an individual market’s volatility increases. The contrapositive would be they would increase their position sizes as an individual market’s volatility decreases.

European family holding companies

candidcurious Whales & platform companies

Sometimes we search for individual investments when great investors are being ignored right at our doorsteps.  Berkshire Hathaway is the granddaddy of them all but there are quite a few mini-Berkshires.  In North America, most value investors are familiar with Leucadia, Loews, Danaher, Platform Specialty Products but interestingly enough, there are a number of publicly listed European holding companies that wealthy European families use for their investments.

Pargesa Holdings (Belgium — Baron Albert Frere;  Canada — Paul Desmarais)

Pargesa is a holding company formed by Albert Frere and Paul Desmarais in 1981. The company has a unique background in that it was formed  to avoid the nationalization of Paribas by the newly elected socialist president Francois Mitterand. The holdings are displayed in the chart below (see 2015 Pargesa Annual General Meeting ).

ag15en_Page_10

Interesting enough, the holding company has traded at a discount to NAV since the mid 2000s (see GBL stock price vs NAV ).

Pargesa, GBL & Power Corp of Canada

Billionaire Frere

Wendel (France — Wendel family)

Founded in the France in 1704, the Wendel Group developed its business over more than 300 years in diverse industrial sectors, mainly steelmaking. At the end of the 1970s, the French government nationalized all of their steel production activities. Wendel, a pioneer in private equity, then turned its focus to long-term investing.

History and background on the family & company can be found on their website.

 Wendel Group history

The holdings are displayed in the chart below ( see 2015 Wendel Group Investor Day ).

1_wendel_wendelid2015_jm_1_Page_12(Interesting side note for UK residents – Saint Gobain is the parent company of the large UK building supplier Jewson).

Unlike several other European family holding companies, the Wendel Group has a significant allocation to unlisted (private) companies.

1_wendel_wendelid2015_jm_1_Page_13

Similar to Pargesa, the Wendel Group trades at a discount to NAV (see Wendel Group – stock vs NAV ).

1_wendel_wendelid2015_jm_1_Page_06Exor (Italy — Agnelli family)

Exor is a holding company controlled by the Agnelli family that owns interests in the companies in the slide below.

 

portafoglio_investimenti_en (1)

John Elkann, the Chairman and CEO, appears to be building an Italian Berkshire Hathaway with his investing style.  He even pens a genuine letter to his shareholders 2014 Letter to shareholders

Once again, the holding company trades at a discount to NAV. I believe the discount is now circa 15% using NAV data as of Sep 2015. Here’s a slide of the stock & NAV performance as of May 2015 (See  May 2015 Investor Call ).May29 ConfCall FINAL (3)_Page_08

Investor AB (Sweden — Wallenberg family )

Founded by the Wallenberg family a hundred years ago, Investor is the leading owner of high quality Nordic-based international companies. Investor was founded 1916 and spun out of Stockholms Enskilda Bank.  From 1916 to the early 1970s, Investor was part of Stockholms Enskilda Bank, which had been managed by the Wallenberg family ever since the bank was founded in 1856. Later, Investor gradually developed into a holding company with independent operations. .

Today, they have diverse holdings in leading Nordic companies ( 2015 Investor AB presentation ). In many cases they are the largest shareholder of the listed company.

investor_year-end_2015_presentation_Page_03

2015 Year end report

Wallenberg family

Investor AB & Wallenberg family

Once again this trades at a discount to NAV as well. Some people may argue that the dual share class structure with Investor AB is the source for some of the discount.

Summary

One could argue that investing in such holding companies is a lazy way to invest but I have no problem  conceding that these firms excel at creating shareholder value over generations. Whether or not one invests, one can certainly learn something from watching and analyzing their investment approach.

 

Basic CTA models … Stop loss levels

candidcurious Quantitative trading

I ran a Commodity Trading Advisor (“CTA”) many years ago and an interesting output of our trading models were the stop loss levels. It turns out that most CTAs are trend followers, looking to exploit momentum in the commodity and financial future markets. As such, there’s a high degree of overlap between most CTAs performance and entry/exit timings.

Most CTAs will run a number of models & parametrizations on a given market. For instance, they could have 5 different models to measure momentum with 6 different parametrizations each to account for different time frames. As such, a total of 30 different signals could be generated for each market. The aggregated position will be the sum of the 30 different signals.

It is particularly interesting when a market became offsides. In other words, a vast majority of the signals are long or short. This usually means the CTA/trend following community is all in. Then, when these markets reverse you know there could be a vast amount of stop loss selling or short covering, as well as any potential new signals to go short or go long.  Quite often, these levels are good predictors of heightened market volatility. As such, I used to always keep an eye on them to see which markets had the most potential for an explosive move.

In the table below I’ve listed out these stop loss levels for various energy and metal futures markets. The green cells highlight the levels of stop loss buying. This would either be short covering or entering new longs. The red cells highlight the levels of stop loss selling. Once again, this could be long liquidation or new shorts. The white cells in bold provide current market levels.

The link below is to a spreasheet that contains the levels for a bunch of other markets – agriculture products, equity products, fixed income products, soft commodities, etc.

energylevels_0201

metallevels_0201

marketlevels_0201