September portfolio update

For the three months to September 30, 2024, my taxable portfolio rose 7.14% and my SMSF rose 4.43%. My benchmark, the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt), rose 9.12% over the same period.

During the quarter, I built up a position in Mitachi Sangyo (3321.T), a Japanese trading company focusing on electrical components. I have written up Mitachi on my Substack. In short, Mitachi is a net-net trading at 7x PE with a positive earnings outlook over the coming years.

The major event during the quarter was the closing of the Task Group/PAR merger. This was a very attractive situation and I had a very large position. Thankfully, it closed without issue and with only minor delays. Otherwise, I ended up selling my position in G&M Holdings (6038.HK). While the company is still cheap, the order book is the lowest in years and the operating environment remains difficult. G&M announced a whopping dividend, so I took advantage of the extra liquidity to exit my position.

Heading into Q4, I have a significant cash position in my taxable account of around 19%. The SMSF also has a significant cash position but I have a substantial tax bill due in May. As a result of the purchase of Mitachi and adding to some other Japanese stocks during the recent market volatility, I have a very large exposure to Japan at the moment. My exposure is through three stocks, which are in different industries but all at attractive valuations. As my portfolio's returns are in AUD, I will have significant exposure to the yen. While I don't try to predict forex markets, it seems to me that the Japanese yen is more likely to be undervalued than overvalued.

I'm hoping I can find some interesting ideas heading into Q4, ideally not in Japan. I'm especially looking for ideas that offer attractive returns that aren't correlated to the broader stock market, like the TSK/PAR trade.

	August 3, 2017	September 30, 2024	Since July 1, 2024	Since Inception	Annualised
G&W Portfolio	1.0000	3.739	7.14%	273.90%	20.21%
Benchmark (SPAX2F0)	61,250.80	129,593.72	9.12%	111.58%	11.03%

N.B. The returns for my SMSF are unaudited and are calculated net of all expenses and realised taxes (but not unrealised taxes). 

	August 4, 2021	June 30, 2024	Since July 1, 2024	Since Inception	Annualised
G&W SMSF	1.0000	1.8150	4.43%	81.50%	20.77%
Benchmark (SPAX2F0)	98,123.18	129,593.72	9.12%	32.07%	9.21%

June portfolio update

For the three months to June 30, 2024, my PA was up 5.02% while my SMSF was up 2.59%. Over the same period, the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt) fell 1.05%. 

The biggest contributor was Arca Biopharma (NASDAQ:ABIO). Arca was another biopharma company that had wound down operations and was seeking strategic alternatives. The process took an extraordinarily long time to complete, but the end result was fantastic. I purchase my ABIO shares in January for $1.57 (after buying and selling shares in the company previously). There was a decent discount to cash, and indications that the process was winding up. ABIO announced a reverse merger with Oruka Therapeutics in April, which sent the stock soaring. I sold my position between $3.35 and $3.90 immediately after the announcement. I never expected this result, but it feels akin to winning the lottery. I was lucky rather than exhibiting any great skill, but I am happy to take the win and move on.

In April, I also received a $3.16 liquidation distribution from Cyteir Therapeutics. This was a decent result, but I was hoping for a little bit more. Luckily, I was able to buy more shares before the distribution at just over $3. Cyteir has indicated that there could be further liquidations distributions in future, which is good news, but I imagine they would be minimal (if we do see any at all).

Otherwise, I put some small amounts of money to work in some odd-lot tenders. One didn't work out (MNST, as I was overly optimistic and bought over the bottom of the limit) while one did (TLNE). I have a couple of other of these situations in the portfolio currently, but they are so small as to be almost irrelevant in terms of overall returns. I also did a little bit of selling of some of my HK stocks before the end of the financial year to generate some losses to offset my short-term gains. I'm hoping to buy these stocks back at some point, as they remain very cheap.

I added two new positions to the portfolio, Task Group (ASX:TSK) and MACOMPTA.FR (EPA:MLMCA). Task Group is being acquired by PAR Technologies, which is listed in the US, and there was a very attractive spread to the shares + cash consideration option. I bought a lot of TSK (it's now the largest position in my PA) and hedged the PAR that I will receive. As of today, it turns out I would have been better off without the hedge, but I wasn't prepared to take the risk of PAR stock falling. Overall, the situation has worked out very well. The deal has closed as expected and I will receive the takeover consideration shortly.

MACOMPTA is a tiny French software business. I bought it after reading a write-up by Tristan/@hurdle_rate on Twitter. Tristan's write up lays out the key information. In short, MACOMPTA is a business that earns very high returns on capital, is growing very fast (+30% CAGR over recent years) and is trading at a reasonable multiple. On top of that, there are some reasons to believe why the business should continue to grow quickly. The company is very illiquid though, so I have factored that into my position sizing.

Overall, I remain pessimistic about the portfolio. Many of the stocks I bought over the last two years seem to be close to fair value. Meanwhile, I'm finding it harder to find good new ideas for the portfolio. I continue to believe Japan remains an attractive place to find value, so I will be focusing my research there for the time being. I have found one company already that I have added to the portfolio since the end of June; it seems cheap, but I still have some outstanding questions. If the business performs well, I have the option to buy more over time, so I won't be writing it up anytime soon. As of June 12, my PA had 33.93% in cash (not including proceeds from the TSK takeover which I should receive in the next week or so); my SMSF had 14.02% in cash.

The benchmark I use for both portfolios is the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt). As mentioned in my previous update, I've started including my cash balance in my PA results starting January 1, 2024. Previously, I did not include any cash balances in my PA results, but I was always nearly fully invested.

	August 3, 2017	June 30, 2024	Since July 1, 2023	Since Inception	Annualised
G&W Portfolio	1.0000	3.4898	55.83%	248.98%	19.82%
Benchmark (SPAX2F0)	61,250.80	118,759.03	13.87%	93.89%	10.05%

N.B. The returns for my SMSF are unaudited and are calculated net of all expenses and realised taxes (but not unrealised taxes). 

	August 4, 2021	June 30, 2024	Since July 1, 2023	Since Inception	Annualised
G&W SMSF	1.0000	1.7381	51.46%	73.81%	20.94%
Benchmark (SPAX2F0)	98,123.18	118,759.03	13.87%	21.03%	7.88%

March portfolio update

For the first three months of 2024, my PA gained 20.77% while my SMSF gained 18.95%. Over the same period, the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt), gained 5.33%. I again had some unusually good fortune, with most positions performing well and no significant losses. This trend is, of course, not sustainable, and I do not expect such results to continue.

My largest winner during the quarter was Atea Pharmaceuticals (NASDAQ:AVIR). At the end of 2023, Atea was trading at a deep discount to cash and was my largest position. Atea rose from $3.05 to $4.04 during the quarter. I sold about a third of my shares when it briefly traded up to $4.50. As of December 31, Atea had net cash less total liabilities of $538.33MM or $6.40 per share. In Q4, Atea had operating expenses of $46.57MM, which includes $12.16MM of stock-based compensation, most of which is well out of the money. If we ignore the stock-based compensation, and add back interest income, Atea burned about $26.66MM during the quarter, or roughly 32 cents per share. That would suggest that Atea would have cash less total liabilities of approximately $431.7MM at the end of 2024 (or $5.20 per share). Atea's primary focus is on developing an oral antiviral for COVID-19. Their candidate, bemnifosbuvir, is currently in a phase 3 trial with results expected in the second half of 2024. I suspect the market would react favourably to positive trial results. In the event that the trial fails, the company would likely face pressure to wind down its operations and return cash to shareholders. It seems to me that the risk-reward remains favourable, even though the margin of safety is considerably less than when I purchased my shares.

Other contributors during the month were InDex Pharmaceuticals, a Swedish biotechnology company currently evaluating strategic alternatives, CEL Corp and G & M Holdings. The portfolio received a small boost after receiving the liquidation dividend from Aptinyx, and I also made money from participating in the Cummins/Atmus Filtration odd-lot split off transaction. Finally, the portfolio received a boost from USD/AUD appreciation, as the portfolio contains significant USD exposure via US- and HK-listed stocks (as the HKD is pegged to the USD).

As I have a number of special situations that worked out or are due to work out soon, I have a significant amount of cash in the portfolio. At the end of March, my PA had roughly 40% of the portfolio in cash or in positions that will soon be cashed out. My SMSF is a little better, with about 26.9% in cash and cash-equivalent positions. 

I have been struggling to find exceptional ideas lately, but I've still been finding some things to do. I am in no rush to deploy the cash, and I have a significant tax bill due in about a year, so it is likely I will keep at least a portion of the portfolio in cash/special situations with a short time frame. Needless to say, if I don't find ideas to put the cash to work, it is likely that the portfolio will underperform should the market continue its upwards trajectory. Conversely, the cash position should help if the market moves down.

The benchmark I use for both portfolios is the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt). Due to the cash influx, I've started including my cash balance in my PA results starting January 1, 2024. (This coincides with the large liquidating distribution I received from Aptinyx.) Previously, I did not include any cash balances in my PA results, but I was always nearly fully invested.

	August 3, 2017	March 31, 2024	Since July 1, 2023	Since Inception	Annualised
G&W Portfolio	1.0000	3.3231	48.39%	232.31%	19.75%
Benchmark (SPAX2F0)	61,250.80	120,022.53	15.08%	95.95%	10.62%

N.B. The returns for my SMSF are unaudited and are calculated net of all expenses and realised taxes (but not unrealised taxes). 

	August 4, 2021	March 31, 2024	Since July 1, 2023	Since Inception	Annualised
G&W SMSF	1.0000	1.7111	49.11%	71.11%	22.40%
Benchmark (SPAX2F0)	98,123.18	120,022.53	15.08%	22.32%	7.88%