Friday, July 17

May & June 2015 Review

A slight change to our regularly scheduled programming here (and going forwards).  Due to the busy-ness of life, rather than give you monthly updates Our Man is going to move to Quarterly updates and will hopefully say something a little more useful in them.  If there are any intraquarter changes of note in OM's outlook/the portfolio then expect a special update, and hopefully the imminent and regular return of "Things from my Newsblur"!

Portfolio Update 
All of the below will be covered in an upcoming larger update on the portfolio and outlook.
- Precous Metals: Our Man added positions in Gold (GLD) and Silver (SLV) during May/June, believing that both are poised to bounce strongly in the near future.
- International/Country – In late June, as the fears of a Grexit reached their peak Our Man added to his positions in Italy (EWI) and Spain (EWP) believing that much of the risk had been priced into these names.  OM additionally added slightly to the Argentinean group of names, as these had suffered from the global risk aversion coupled with the market's (over)reaction to some of the political news out of Argentina.
- Equity: OM fully exited his Twitter (TWTR) position, something he should probably have done much sooner after the company lost its way as little in H2-2014.  OM also reduced the position in Tata Motors (TTM).

Performance Review 
May (-1.1%) and especially June (-5.3%) proved to be exceptionally difficult months for the portfolio as very little worked, leaving the YTD performance around flat (-0.2%).

The Equities book (-229bps) saw its losses driven by the position in Tata Motors and Vipshop Holdings, which each cost over 100bps.  While the long-term outlook for Tata Motors is strong, it suffered some temporary setbacks including a rights issue (at a 11-14% discount), front-loading commission costs in its new Chinese JV with Cherry, discouting on the Land Rover Freelander and Discovery (to help make way for new models) and the costs of the Jaguar XE hitting during Q2 prior to the sales.  Vipshop has suffered since its peak in April (though it remains well into positive territory) after disappointing on earnings and getting targeted by some short-sellers before being caught up in the spectacular tumble in Chinese shares late in the quarter.  OM is more sanguine on the position - while they disappointed on the quarter, it was largely as a result of prudent long-term decisions that have short-term costs (i.e. not to discount and chase low quality revenues/business) and the recent downdraft represents an opportunity to add to an Internet commerce company that is both profitable and growing!  (SPOILER ALERT -- yes, this means OM added to it in July).

The International book cost just over 300bps.  The largest culprit was the direct exposure to Greece, which cost about 1/3 of the total, and given the headlines this shouldn't come as a shock.  Greece is exceptionally cheap on just about any historical measure, but the economy is pretty much exceptionally screwed up by just about any historical comparison or precedent (think US depression of the 30s, as a fair comparison).  OM's bet is that while it will be exceptionally volatile, Greece's economy will go from abysmal to really bad, before it's companies (at least those in the index/ETF) go out of business and that the upside is commensurate to the risk of being wrong (i.e. if OM is right, the returns has to be multiples).  The positions in Spain and Italy also suffered (costing ~60bps) from the Greece fallout.  Finally, the Argentinean names cost ~100bps, after Scioli named Carlos Zannini (an ally of exiting President Kirchner) as his VP candidate and subsequently led in a number of polls, leading to investors (especially foreign) holding back.  OM understands this but suspects as primary season ends, Scioli will become less feared as he sets out his plans for the general election and investors look at his track record as Governor of BA Province.
 
The Precious Metals book cost ~100bps, pretty evenly split between the gold miners and the metals themselves; currently, OM believes he's early rather than wrong something that's solidified by a couple of recent surveys that suggest sentiment on the sector is at multi-decade lows!  Elsewhere, there was much ado about nothing the Technical book cost 27bps as the major US indices bounced around, while the Currencies book (+17bps) and the China Thesis (+12bps) both profited as the dollar strengthened.


Portfolio (as at 6/30 - all delta and leverage adjusted, as appropriate)
33.9% - International/Country (EWI/EWP/GREK in Europe, GVAL, and Argentinian names)
33.2% - Technical Book (DDM, QLD and SSO)
16.5% - Equities (RDY, TTM, TWTR & VIPS) 
10.3% - Precious Metals (GDX, GLD and SLV)
0.0% - Energy Efficiency (AXPW, and XIDE)

-6.1% - China-Related Thesis (CROC – Short Australian Dollar) 
-17.2% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)

11.1% - Cash 

Disclaimer:  For added clarity, Our Man is invested in all of the securities mentioned.  He also holds some cash and a few other securities (of negligible value).  You should not buy any of these securities because Our Man has mentioned them, but should do your own work and decide what’s best for you.
  

Tuesday, May 19

April 2015 Review


Portfolio Update  
- Our Man had to reduce the size of the portfolio at month-end (pesky kids…) and given that all positions were going to be impacted, he used the opportunity to reshape the portfolio slightly based on his current conviction levels.  These changes, and some subsequent ones, will be the subject of a separate blog post.

Performance Review  
The portfolio was down 1.79% for the month of April, which put the year-to-date performance of +6.6%.

The portfolio’s exposure to the US Dollar proved the largest negative contributor for the month with the China Thesis (-77bps) and the Currencies book (-114bps) hurt by the fall in the US Dollar against the Australian Dollar and Euro respectively.  Both of these books were substantially reduced in size during the month, though Our Man expects that this will likely be reversed at some point within the next 12 months as his expectations and targets for the Australian Dollar and Euro are substantially lower than their current rates against he US Dollar.  The Dollar’s weakness, saw the hint of some strength in Gold, which Our Man benefited from through his exposure to Gold Miners in the Precious Metals (+27bps) book.

The overall exposure to equities was a slightly negative contributor for the month.  The Equities book (-98bps) fell with TTM, RDY and TWTR (which had disappointing numbers/guidance) being the primary contributors.  The  Energy Efficiency book (-3bps) had a small impact.  The strong performance of the European markets helped the International/Country book (+58bps) have a strong month, though uncertainty remains regarding Greece’s place within the Euro.  Finally the Technical book (+28bps) benefited from the rise in the US markets.

Portfolio (as at 5/1 - all delta and leverage adjusted, as appropriate) 
32.0% - Technical Book (DDM, QLD and SSO)
29.4% - International/Country (EWI/EWP/GREK in Europe, GVAL, and Argentinian names)
22.3% - Equities (RDY, TTM, TWTR & VIPS) 
4.6% - Precious Metals (GDX)
0.0% - Energy Efficiency (AXPW, and XIDE) 
 

-5.5% - China-Related Thesis (CROC – Short Australian Dollar) 
-15.7% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)

17.1% - Cash 

Disclaimer:  For added clarity, Our Man is invested in all of the securities mentioned.  He also holds some cash and a few other securities (of negligible value).  You should not buy any of these securities because Our Man has mentioned them, but should do your own work and decide what’s best for you.

Sunday, April 12

March 2015 Review


Portfolio Update 
- International/Country:  OM reduced the size of the Argentina position after exiting the position in Banco Macro (BMA), which has performed exceptionally strongly all year but has priced in a lot of the potential changes while (due to being a bank) retaining more risk of political intervention than most of the other Argentina names.  Broadly speaking, the Argentina thesis is playing out well, with foreign investors starting to look more in-depth at the country given the likely change of government later in 2015.
- NCAV Book: While this had no impact on the portfolio, as there are no existing positions in the NCAV book, OM decided to close it down permanently.  This was not the result of performance as the book has been profitable in 4 of the 5 years (contributing ~65bps to performance) and it’s also out-performed the S&P 500 TR on a ROIC basis by a significant margin over that period.  However, it’s a book that uses a very small amount of capital but that takes up some time both in running the screens, and in the various processes that OM has to go through in order to trade the names.

Performance Review 
March saw the portfolio rise 36bps, resulting in a +8.6% YTD performance during the first quarter.

Once more the key driver of performance was the portfolio’s bias towards being Long US Dollar.  This resulted in the Currencies book (+97bps) and the China Thesis book (+36bps) producing exceptionally strong gains, driven by the US Dollar’s strength versus the Euro and the Australian dollar.   However, it should be noted, that Our Man’s decision to exit the Chinese A-Shares (CAF) last month has resulted in much missed opportunity cost.  While there are certainly bubble-like elements to the sharp rise in Chinese A-shares, OM could (and perhaps should) certainly be participating in their continued rise especially given his original thesis (that China was slowing down, and that being L A-shares was a great hedge to the S Australia dollar position, as it would benefit significantly from any QE or stealth QE in China) is largely proving out.  On the negative side, the position in Precious Metals (-46bps) held through the Gold Miners has continued to cost money; Our Man was unquestionably early here, though it’s not clear that he’s wrong (yet).

The International/Country book (+30bps) was a continuation of much of what we’ve seen over recent months.  The European positions continue to be choppy (-70bps, though this includes currency losses from the Euro's weakening), whereas Argentina continues to be exceptionally strong (+108bps).

The Equities (-29bps) and Technical (-51bps) books were both negative contributors as markets fell again in March.  The Technical book, despite it’s negative performance, so no signs of any sell signals and one is unlikely unless the damage is somewhat deeper and/or more sustained.   The equities book saw weak performance from the Theravance companies (THRX/TBPH which cost a combined 78bps) after they received only partial FDA approvals for product extensions.  These losses were offset by the continued rise of VIPS, where management continue to execute and the company continues to grow both exceptionally quickly AND profitably!  The Energy Efficiency book (-1bps) had no material impact.


Portfolio (as at 3/31 - all delta and leverage adjusted, as appropriate)
22.4% - Technical Book (DDM, QLD and SSO)
21.7% - Equities (EOX, GPOR, RDY, TBPH, THRX, TTM, TWTR & VIPS) 
15.9% - International/Country (EWI/EWP/GREK in Europe, GVAL, and Argentinian names)
2.7% - Precious Metals (GDX)
0.0% - Energy Efficiency (AXPW, and XIDE)

-20.6% - China-Related Thesis (CROC – Short Australian Dollar) 
-44.6% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)

15.8% - Cash 

Disclaimer:  For added clarity, Our Man is invested in all of the securities mentioned.  He also holds some cash and a few other securities (of negligible value).  You should not buy any of these securities because Our Man has mentioned them, but should do your own work and decide what’s best for you.

Thursday, March 5

February 2015 Review

Portfolio Update  
- International/Country:  As the Greece negotiations reached their conclusion, OM re-entered the positions in Italy (EWI) and Spain (EWP) at lower prices than those he exited at during the second half of last year.  Both markets remain ‘cheap’ on a long-term (CAPE) view, and should benefit from European QE and some reduction in the fears surrounding Greece/Europe.
- China Thesis:  Following the exceptionally strong run-up in Chinese A-shares, which has seen CAF rise ~30%+ since the start of 2014, OM exited his position there.

Performance Review
The portfolio performed exceptionally strongly during February, rising 7.51%, following the positive January, leaving it in a healthy state for 2015 (+8.2%).

February was one of those exceptionally rare months where everything in the portfolio worked well in unison.   Stocks markets globally were up strongly, as the (at least temporary) resolving of the situation between Greece and its European partners, combined with widespread Central Bank easing across the globe, helped whet risk appetites and drive stocks higher.  This broad spread increase helped all of the equity books, especially the Technical book (+144bps). 

The biggest driver of performance was the Equity book (+368bps).  Over half the gains from the Theravance positions (THRX and TBPH) after GSK’s (its partner on its main drug) and then Theravance’s own quarterly results helped solidify the confidence in sales and provide a more detailed outlook going forwards (and with regards to the dividend).   The Energy names (GPOR and EOX) both rallied with the stabilization/bounce in crude and the Internet names (TWTR and VIPS) contributed well after both reported positive quarters.

The International/Country book (+199bps) was aided by the agreement in Greece which contributed just under half the returns, as well as Argentina (also just under ½ the returns) where there are elections later this year.  Last month OM told you he was not too disheartened by January’s performance and this month, he’s not overly excited by the strong contribution.  Both Greece and Argentina are hopefully going to be major contributors to the portfolio over the next couple of years, but it will come with volatility.

The Currencies book (+55bps) was again a good contributor, as the global CB easing continues and with the discussion in the US remaining on when (not if) the Fed might raise rates, the US Dollar continues to benefit rising against both the Euro and Yen during the month.

There were limited contributions from the Energy Efficiency (-4bps), Precious Metals (-16bps) and China Thesis (+6bps) books.

Portfolio (as at 2/28 - all delta and leverage adjusted, as appropriate) 
23.5% - Technical Book (DDM, QLD and SSO)
22.1% - Equities (EOX, GPOR, RDY, TBPH, THRX, TTM, TWTR & VIPS) 
17.1% - International/Country (EWI/EWP/GREK in Europe, GVAL, and Argentinian names)
3.2% - Precious Metals (GDX)
0.0% - Energy Efficiency (AXPW, and XIDE)   

-20.0% - China-Related Thesis (CROC – Short Australian Dollar) 
-42.9% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)

14.4% - Cash 

Disclaimer:  For added clarity, Our Man is invested in all of the securities mentioned.  He also holds some cash and a few other securities (of negligible value).  You should not buy any of these securities because Our Man has mentioned them, but should do your own work and decide what’s best for you.

Sunday, February 8

January 2015 Review

Portfolio Update  
- Currencies:  After their strong recent performance, OM trimmed back his positions Short the Euro (EUO) and Short the Yen (YCS) by about 1/3 each.  These trims were prior to the ECB’s decision on QE (which was deliberate, as OM wanted to reduce some of the event risk in case they did not impress the market with their plans) and also prior to the Swiss National Bank abandoning their peg to the Euro (which OM, like most folks, didn’t see coming).
- Absolute Return:  Our Man exited his position in DLTNX, a Total Return Bond Fund; with the Fed now thinking about raising rates, much of the easy money available since 2009 has been made in fixed income.
- Equity:  OM added a position in Gulfort Energy (GPOR), an Energy company.  While OM isn’t convinced that we’re going to see Oil prices rocket back to the $100 in the near-term, he does think there are opportunities in some Energy names that have done sensible things (re. production, costs, etc) and have been discarded along with the broad sector.
- Precious Metals: For the first time in an age, Our Man has taken a position in the Precious Metals book.  While OM remains skeptical on the long-term price of Precious Metals, with the number of Central Banks around the world either cutting interest rates or attempting some form of QE, OM does think there’s the chance of a strong (likely counter-trend) rally in the Precious Metals during 2015 (and perhaps even into 2016).  He’s chosen to play this with a position in the Gold Miners (GDX), which have been heavily beaten-up during Gold’s difficulties.
- International:  Finally, Our Man rounded out his basket of Argentina names, with a position in AGRO.

Performance Review  
January was a volatile month, both for the markets (with the S&P ending up down 3.0%) and for Our Man’s portfolio which saw 13 days of moves greater than 70bps+ in one direction or the other, but ended the month +0.48%.

The performance was driven by the strength of the US Dollar, with the Currencies book (+132bps) and the China Thesis book (+75bps) being strong contributors.  The decision by the ECB to start their version of a QE programme, helped continue the Euro’s weakening trend which was a strong beneficiary for the Currencies book (EUO position added 190bps).  During the month, it became widely-expected that the Royal Bank of Australia would join those countries easing monetary policy (it cut rates at the start of February), and this helped the Australian Dollar weaken during January (OM’s position in CROC, S Australian Dollars, helped add 90bps to the China Thesis book).

The fall in the Equity markets was directly reflected in the Technical Book (-70bps), though less so in the Equities book (+31bps).  The Equities book saw numerous cross currents that eventually lead to that small positive performance, with the Energy names (-18bps) and the position in THeravance (-73bps, after concerns on the speed of the ramp of its products by GSK).  Against these, there was a strong perofrmance from Tata Motors (TTM +67bps) as the sales at Land Rover and Jaguar continue to do well, and from the Internet names (+46bps) though this largely reflected VIPS recovering its December decline.

The largest detractor was the International book (-125bps), which was substantially all from the position in Greece (GREK) that declined as it became clear (and then reality) that the opposition (and anti-austerity) Syriza party were on course for victory in the election, which has led to further discussion/debate/speculation about Greece’s place in the Euro and the various ECB/IMF loans and promgrammes.  .   In many ways the Argentina and Greece positions bear great similarity; they’re sized about the same (4-5% of capital, each), are inherently volatile and moved by sentiment/politics in the short-term (and thus in any given month are likely to be noticable positve or negative contributors).  They also both reflect a combination of (i) extreme undervaluation (when looking at long-term measures, such as CAPE), (ii) time arbitrage (things are not as dark as they seem today, and the further we progress the clearer this will become…especially after point 3) and (iii) a catalytic event.  For Argentina, the event is the election of a new President later this year and the changes that are likely to follow thereafter, and for Greece the events were (i) the original bailout back in 2010 and (ii) the recent election, which will more substantially determine Greece’s debtloads, austerity, and position within the Euro.  As such, don’t expect Our Man to be overly swayed by large short-term moves in either direction from these positions – they’re sized such that the portfolio can withstand these moves, with the hope of returning multiples on the employed capital on a 3-4year view.

Elsewhere there were small impacts from the Absolute/Bond Funds (+5bps), Puts/Hedges (-3bps), Precious Metals (+4bps) and Energy Efficiency (+1bp) books.

Portfolio (as at 1/31 - all delta and leverage adjusted, as appropriate) 
22.4% - Technical Book (DDM, QLD and SSO)
20.1% - Equities (EOX, GPOR, RDY, TBPH, THRX, TTM, TWTR & VIPS) 
9.9% - International/Country (GREK, GVAL, and Argentinian names)
3.6% - Precious Metals (GDX)
0.1% - Energy Efficiency (AXPW, and XIDE) 
 

-17.8% - China-Related Thesis (CROC – Short Australian Dollar, partially offset by CAF – Long Chinese A-Shares) 

-45.0% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)

17.7% - Cash 

Disclaimer:  For added clarity, Our Man is invested in all of the securities mentioned.  He also holds some cash and a few other securities (of negligible value).  You should not buy any of these securities because Our Man has mentioned them, but should do your own work and decide what’s best for you.