1st Quarter update

I’ve been remiss in blogging about my investments this first quarter. My only excuse is that there really wasn’t much to blog about. The market has remained high and I haven’t found many good opportunities for my Value portfolio. I did add to my position in Fortress Paper when the earnings came out and the shares dipped. I also added small positions in both Altius Minerals and Gazprom about 3 weeks ago when shares in both dipped toward 12 month lows; in the case of the former I’m not sure exactly why, though for Gazprom it was the impact of the Crimea episode.

My largest position by far continues to be AIG. The share price has lagged the market over the past quarter, declining some 3% YTD, due to disappointing 4Q earnings. I think in general everyone had expected that returns on assets/equity would continue to revert to the mean (in this case upward) much faster than it actually has. Patience is the key here. The shares appreciated more than 40% in 2013, considerably more than the overall market, so a short breather is probably in order. I continue to believe ROE will eventually begin to creep upwards again and the market should reward the shares. In the meantime the dividends continue to grow.

My bank of America warrants, on the other hand, performed admirably in 1Q, with the warrant price increasing over 25%, cleanly besting the S&P 500’s 1% gain. Other winners for the quarter included NovaGold, up 40% on a small rebound in gold prices and Resolute Forest Products up over 20% on better than expected 4th quarter results. And, while Fortress Paper shares were down for the quarter, I did load up, increasing my position 50% when the share price swooned to around $2.50 around the earnings release. So, all in all, the performance of my position did much better than the share price.

Other events relating to portfolio companies:

1) Peter Kellogg has effectively taken control of MFC Industrial. Following an agreement just prior to the contested proxy vote at the annual meeting in December that resulted in two board seats given to Kellogg representatives, things have evolved further, with Kellogg subsequently being elected Chairman of the Board and Michael Smith announcing his retirement from an operational role at the company by the end of this year.  There have also been two significant acquisitions (which I assume were Smith’s doing) in Q1 that finally put some of the company’s idle capital to work. Let’s see if Kellogg can get the company assets to generate the kind of returns we investors have been waiting for. I’m wondering whether some or all of the Compton Petroleum assets might now be disposed of as natural gas extraction doesn’t really seem to fit in with the MFC’s stated corporate mandate. Though opportunistic and outside the company’s main line of business I do think the Compton acquisition could still prove to be transformative (perhaps in the context of a sale).

2) Steel Partners announced a dutch tender for $49 million worth of units. This is a minimum of 9.1% of units outstanding if the final tender price is at the high end, $17.50. I can tell you that I won’t be tendering (and neither are any of the owners/officers of Steel Partners) as I continue to believe the units are trading for about a 40% discount to NAV.

3) I had almost decided to up my position in RadioShack (shares were trading around $2) when it was announced that Litespeed had taken an 8% interest. The result was a quick 20% uptick. But after a month, the shares are back down around the $2.00 mark. I may take another look soon.

As to my two new additions, Gazprom and Altius Minerals, I’ll have to work up a separate post for each if and when I decide to make either more than just a small starter position.