February Review

Portfolio Update
There were no changes to the portfolio during February though we did receive the semi-annual interest payment on the Aug-2029 Treasury bond, which added to the level of cash.

Performance Review
February saw a slight bounce back in the portfolio’s performance, with a 1.5% gain helping offset part of January’s losses (-1.0% YTD).

The tension in the Middle East resulted in increased risk aversion in the markets during the middle part of February.  As a result, the Long Treasury Bonds book (+55bps) was a strong contributor, despite the continued relatively positive tenor of the economic data.  The majority of the portfolio’s risk remains concentrated in this book, and it’s likely to be volatile given the numerous economic (ranging from potential US Govt shut-downs, to potential short-term inflation, to the end of QE2, to name just three) and political (further Middle-East protests, German regional elections, new Irish government trying to renegotiate their bail-out, etc) factors that may affect markets over the coming months.  The Bond Funds bucket (+10bps) was a small contributor during the month.

The Value Equities book (+60bps) recovered part of its January losses, largely as a result of THRX bouncing back from its January swoon on the back of decent results and the progression of a drug into phase III trials.  The Other Equity (+14bps) and NCAV (+25bps) were helpful contributors to performance, both outperforming the equity markets.  Against their gains, the Puts/Hedges book (-7bps) and the small Short China book (-<1bp) both hampered performance.   Finally, with Europe showing some signs of calm the Currency book (-6bps) was also a negative performer.

Portfolio
40.7% - Long Treasury Bonds (Aug-29 Bond & TLT)
21.8% - Long Bond Funds (VBIIX, DLTNX and HSTRX)
7.5% - Value Idea Equities (THRX, and DRWI)
4.9% - NCAV Equities
3.3% - Other Equities (NWS, CMTL and SOAP)

-0.8% (delta-adjusted) - China-Related Thesis (22bps premium in FCX put)
-0.74% (delta-adjusted) - Hedges/Put Options (21bps premium in S&P Dec-11 puts)

-5.7% (leverage-adjusted) – Currencies (EUO – Short Euro)

18.7% - Cash