Q1 12 was one of the best 1Q of the past three decades for German equities. With an appreciation of 18% of the DAX and of 17% of the FAZ index the market clearly outperformed euroland (EuroSTOXX50 gained 7%). Similar quarters were Q1 1983 and Q1 1998, i.e. this seems to happen every 15 years or so.
At times like these it is rather uncommon that our long-short portfolio yields positive returns as fundamentally weak companies typically outperform the market. This year was exceptional as our long recommendations gained almost 18% whereas the short portfolio did not any better (+16.5%). Consequently, hedge investors that followed our advice did clearly not match the performance of long-only investors, but they did not lose any money.
The positive performance gap was achieved with EuroSTOXX50 constituents (+12.7) and ‘others’ (+3.6%). Because of only one short stock out of the DAX index (i.e. HeidelbergCement) this class of shares generated a considerable negative return for hedge investors whereas the long-short portfolio of MDax constituents resulted in a marginal loss of 0.9%.
Our best long recommendations of the past quarter were Lanxess (+55%), Drägerwerk (+47%), as well as TAKKT (+37%) and Scania (+35%). On the other hand, the worst performers of our short list were SGL Carbon (-10%) and GDF Suez (-8%).
The performance of the past four WACC model portfolios is very positive indeed. The four long portfolios gained a total of 7.4% while the DAX fell by 3.2% and the EuroSTOXX50 by more than 16%. This shows that long investors that followed our advice during the past year outperformed both reference indices. During the same year the four short lists lost almost 35%. As a result, long-short hedge investors gained more than 42pp or some 65%.