Average Annualized Return Per Closed Trade: 17.9%
Average Return Per Closed Trade: 15.5%
Average Holding Period: 320 days

Just mere days after the murder of a policeman in Paris by an Islamic gunman, the French will cast their votes for their next president on Sunday. Marine Le Pen, the far-right nativist candidate who vows to tighten borders and pull France out of the euro zone (and possibly the European Union) if elected, currently ranks second in polls. Whether the murder will win enough undecided voters over to Le Pen’s side is unknown.

Since none of the presidential candidates will likely win the majority of the votes on Sunday, the top-two vote-getters will face off in round two, on May 7. The winner of that vote wins the presidency. If the votes are cast in round one as the polls predict, then Le Pen will advance to the runoff and face off against moderate Emmanuel Macron.

Analysts expect the supporters of left and centrist candidates who lose in the first round to give their support to Macron in the second round and help him defeat Le Pen. However, given a very tight race between the top-four candidates and one third of French voters still being undecided.  

Most investors no doubt remember the Grexit crisis, which riled markets for months. The possible exit of France, the second-largest economy in the euro bloc, in the event of a Le Pen victory, could be an even more chaotic market event. The victory of the far-left candidate Jean-Luc Melenchon, who has said that he wants a 100 percent tax above certain incomes, would be a negative for markets as well.

The chances for an extreme left or right candidate prevailing still looks slim, but as recent elections have shown us, until the actual votes are cast, investors should not assume anything. We have kept the size of our Brain Trust Portfolio small as there are still plenty of overhanging risks and stock valuations are high. We will continue to monitor the situation and adjust our portfolio accordingly.

Stock Update: According to preliminary results, Innoviva (INVA) has won a narrow proxy fight. All members of the Board of Directors were reelected. That Innoviva only managed to eke out a narrow victory even with the support of partner GlaxoSmithKline (which owns 29.3 percent of shares) indicates that most shareholders sided with Sarissa Capital. Without GSK’s backing, Innoviva would have lost in a landslide.

Innoviva and Sarissa had nearly agreed to a settlement whereby Innoviva would agree to put two of Sarissa’s three nominees to the board. However, when Innoviva realized that it may have the votes to prevail, it backed out. 

Accused by Sarissa of spending too much money on executive pay and board compensation, Innoviva has promised to thoroughly review its compensation structure. The message from the shareholders seems clear: Innoviva needs to trim some salaries.

Sarissa isn’t giving up, however. Sarissa informed attendees at Innoviva’s annual meeting that it plans to sue the company for allegedly reneging on the settlement deal.

In its press release, Sarissa alleges that Innoviva had accepted its offer to add two of Sarissa’s nominees to the board in exchange to ending the proxy contest and had gone as far as requesting and receiving Sarissa’s signature pages before informing Sarissa that the deal is off.

While the share price has fallen back below $13, ending today at $12.52, it’s still above our suggested buy-up-to price of $12. Our reference stock, Seth Klarman’s Baupost Group, still has a large stake in INVA. It owns more than 13 percent of the company, second only to GSK. We do not know which way Baupost voted.  

Although the proxy fight went against most non-GSK shareholders, hopefully the company indeed received the message and will better control its costs.

We post a snapshot of our Brain Trust Profits Portfolio and the record of our closed trades below. For a more detailed table of current recommendations as well as information on closed trades, log into our website and click on the ‘Portfolio’ link.



Closed Trades: