RDR Capital’s global portfolio is up 21.1% in 2019 and since inception (the portfolio was incepted on the 1st of January 2019). The total return of 21.1% is in GBP terms; in USD terms, the total return is 26.2%.
As discussed in our year-end 2018 note, we have liquidated our Middle East and North Africa (MENA) portfolio at the end of 2018 to focus our resources on the global portfolio, which has received significant additional funding at the beginning of 2019. Hence, we view it as appropriate to consider the date of inception as the 1st of January 2019. The strategy remains research-based value, with the flexibility to continue to hold strong performing investments despite being fully valued on a fundamental basis.
Strong year despite challenges in markets
Our global portfolio performed well in 2019 despite a challenging environment in markets where finding compelling value proved elusive. The largest contributor to our total returns was Diageo (DGE LN), our largest holding. We remain positive on Diageo as a core holding as it enters 2020 as our largest holding, for the second year in a row. Diageo is well positioned to capture growth in the global spirits market, especially in the US and some key Emerging Markets.
The best performing share of 2019 was Games Workshop (GAW LN), a well-managed British company benefiting from the growth in its niche market of designing, manufacturing and selling fantasy miniatures and their related products. Sadly, we have exited our entire position in the company during November 2019 as we believed the valuation to be quite stretched, however the company remains on our watchlist.
On the flip side, the worst performing share was Aston Martin Lagonda (AML LN). We were attracted to the shares of the luxury sports car manufacturer after they dropped significantly from their IPO levels. However, we “caught a falling knife”. We have traded the shares at the bottom levels and recovered most of our losses, and we are still holding on to our now much smaller initial position. In retrospect, we should have waited until the shares found a bottom, or at least reacted quickly when the share price hit our stop loss level. The company is hoping that the launch of its DBX sports utility vehicle in December 2019 will help the business to recover and boost much need cash flows. However, the more realistic expectation is for this super brand to be acquired.
The most volatile, and exciting, investment of 2019 was in NMC Health (NMC LN). We have held positions in the UAE-based hospitals operator for many years and the share price performed strongly until late 2018 when the valuation was stretched. We continued to hold part of our initial investment until we exited completely in September 2019 at around £30. Since our exit, the shares dropped significantly on the back of a report by short seller Muddy Waters which highlighted corporate governance and disclosure issues. We have reinitiated a position at much lower levels as we view the drop is the share price as excessive and makes the valuation attractive again. However, we will maintain a tight risk management process on this investment. The company is a leading healthcare provider with a strong brand operating in a region (mostly in the Gulf Cooperation Council) where demand for its services is strong and growing.
We also initiated a position in Walt Disney Company (DIS US) in late 2019. The company is well positioned for growth over the medium term, especially with the launch of its streaming business Disney+, which will be supported by content from Marvel, Star Wars, Pixar, and of course its classic Disney content. This is in addition to its strong cash generating businesses of theme parks, Disney merchandising and box office films.
Looking forward to 2020
We have been cautious for the past two years and we remain cautious going into 2020, given the very strong performance of global markets in 2019, especially in the US. However, unlike previous years we will start 2020 with no short hedging positions. We prefer to hold c20-30% in cash to take advantage of compelling investment opportunities as and when they present themselves.
It is our view that 2020 will certainly be an interesting year given the numerous geopolitical and economic hurdles that could come up, from the trade war between the US and China to Brexit and the upcoming US presidential elections.
We wish our readers and investors a 2020 full of health, happiness and prosperity.