Mohnish Pabrai’s Spinoff Portfolio Gets Crushed In 2018, All New Names For 2019

Happy New Year to all of our readers! 2018 is now officially history and it will be remembered as a year of increased volatility that ultimately left some portfolios quite damaged. That includes Mohnish Pabrai’s Spinoff Portfolio and its (backtested) historically S&P crushing results.  Pabrai is a legendary fund manager and author of The Dhando Investor.  In one of our most popular pieces from the year 2018, we highlighted Pabrai’s creation of the Spinoff Fund, which is a concentrated, five name portfolio of spinoffs with a bevy of rules dictating portfolio management and position selection. Please see our earlier piece for some more details on that front, but the portfolio turns over with the turning of the calendar. Before we get to the new names though, here is a summary of the five names from 2018 and their (approximately) respective performances:

1. CSRA – +37.4%
2. Lamb Weston Holdings (LW) – +30.2%
3. GCP Applied Technology (GCP) – (-23.4%)
4. Synchrony Financial (SYF) – (-39.5%)
5. Adient (ADNT) – (-80.9%)

Although the year started off with a bang with General Dynamics (GD) taking out CSRA at a sizable premium, an equal weighted portfolio would have equated to a roughly (-15.3%) loss for the year. Not great, especially compared to the S&P. The actual results would have been quite different though due to the portfolio rules surrounding an early takeout (CSRA) which would have led to higher weights in the other names for the rest of the year. Adient, a Johnson Controls spinoff and popular hedge fund name, did most of the damage with an absolutely brutal year filled with poor execution, cash flow concerns and senior management turnover.

One year a trend does not make though so don’t despair. The proprietary ‘Free Lunch Portfolio’ model spat out five entirely new spinoff names, all from the year 2017, for 2019:

1. Hamilton Beach Brands Holding (HBB) – a Nacco Industries (NC) kitchen appliance spinoff
2. DXC Technology (DXC) – a Hewlett Packard Enterprise (HPE) spinoff which by the way also had a 2018 spinoff of its own!
3. Varex Imaging Corp. (VREX) – a Varian Medical Systems (VAR) spinoff
4. Hilton Grand Vacations (HGV) – Hilton Worldwide’s (HLT) timeshare spinoff
5. Delphi Technologies (DLPH) – the powertrain Delphi (now Aptiv, APTV) spinoff

An interesting mix for sure featuring quite a diversified range of products and industries. For what it’s worth, 2018 wasn’t a great year for this portfolio either, but past results are not an indicator of future success. In a concentrated portfolio though, it only takes one name to really break or make the performance.

Let’s see what the new year brings. Hopefully 2019 is a great year for spinoffs and we once again want to take this opportunity to wish all of our readers a Happy and a Healthy New Year!

Disclosure: Author holds no position in any stock mentioned and is clearly not following the Spinoff Portfolio yet. This piece contains Amazon affiliate links which will generate a commission to the site (updated 1/3 at 9:05am).