RDR Capital 4Q16 portfolio update

RDR Capital’s MENA portfolio is up +16.0% in 4Q16 and since inception (the portfolio was incepted on the 1st of October 2016).

The MENA portfolio performed exceptionally well during 4Q16

The Middle East and North Africa (MENA) portfolio performed exceptionally well during the last quarter of 2016. A positive macro environment driven primarily by a rebound in oil prices during the quarter helped MENA markets recover from heavy losses earlier in the year.

Al Hokair Group (AATD AB) was the best performer during the quarter as consumer sentiment improved in Saudi Arabia. The shares were up 84.0% during the quarter, and as noted in our post dated 6 December 2016, we felt it was prudent to take advantage of the strong run and reduce our position accordingly.

In addition, the Saudi banks performed well due to a combination of an improved local macro environment and a change in the outlook for interest rates in the US. However, Saudi banks still face a challenging environment in 2017, especially due to their exposure to the construction sector where non-performing loans (NPLs) are expected to continue to grow. The construction sector has been struggling due to a significant reduction in public spending, coupled with delays in payments related to projects currently in progress. As such, we reduced our exposure to Samba Financial Group (SAMBA AB) during the quarter. Samba’s share price performed well during the quarter, despite its large exposure to the struggling Oger Group. We expect the bank to incur higher provisioning costs related to this exposure.

The Global portfolio has been funded

The global portfolio has been funded during the quarter and we have initiated a number of positions. As stated previously, the global portfolio reflects actual investments in global markets and as such represents a verifiable track record of RDR Capital’s performance.

The portfolio remains largely in cash (82.2%); however we have initiated a number of positions including 3 core positions in Unilever (ULVR LN), Reckitt Benckiser (RB/LN) and Diageo (DGE LN). These are very well managed global market leaders benefiting from strong cash generation and well entrenched global brands. All 3 companies have an excellent track record of shareholder value creation.

In addition, we initiated positions in Petrofac (PFC LN) and Spire Healthcare (SPI LN). Petrofac is a well-managed oil services company benefiting from a large order book allowing good visibility for revenues over the medium term. Spire is a UK-based hospital group well positioned to benefit from growth in demand for healthcare services in the medium and long terms.

We have also initiated a small leveraged short position to hedge against possible volatility in markets over the coming months.

We view political risk as the main risk for 2017

We view political risk as the main risk for 2017, with elections in Europe around the corner and a new administration in the US having to deliver on growth promises already priced in, in our view.