Portfolio Update
There were no changes to portfolio during March.
There were no changes to portfolio during March.
Performance Review
While March seemed superficially very similar to January and February there were some noticeable underlying differences, with Emerging Markets performing noticeably poorly led by Shanghai Stock Exchange Composite Index which fell over 6%. In the US, the coincident macro data continued to be reasonable though showed signs of tailing off, while in Europe the markets rallied before relief over Greece’s deal with its creditors slowly waned over the course of the month. Unfortunately, Our Man’s portfolio made no headway, falling 45bps (YTD: -1.8%).
The sources of the profits/losses during the month should not be surprising to regular readers. The Puts/Hedge book (-38bps) and Treasuries book (-17bps) both suffered from the continued preference for risk assets in the US and were consistently negative contributors throughout the month. Elsewhere, the Bond Funds (-6bps), China (-7bps) and Currencies (-3bps) were small negative contributors though all spent the majority of the month around the flat. On the positive side, the NCAV book (+22bps) was the dominant contributor driven by the merger/takeover of one of the positions (OPXT) which alone lifted the entire book c15% in the final days of the month. The Energy Efficiency book (+11bps) benefited largely from the market’s rise.
The sole equity book that did not help performance was the Value Equities (-6bps), which also contributed negatively (about -26bps) over the quarter despite the market’s 10%+ rise. While divergence from the indices is, of course, to be expected when the book contains a mere 2 names and is thus driven predominantly by idiosyncratic factors, both of the positions (THRX and DRWI) are down for the year. While there were no major changes to the underlying fundamentals and news of either position, both have risks hanging over them that have yet to dissipate. DRWI is scheduled to complete a transaction for Nokia-Siemens wireless business in the coming months, which while transformative for the company also brings with it execution risk as they turn their large pile of cash, into a revenue producing business that they have to integrate manage effectively. THRX, together with its key partner GlaxoSmithKline, continues to work on trials and approval process for the compounds in its drug pipeline with regulatory submissions planned for a couple of programs. Our Man’s sense is that for both these companies, it will be their success at managing these factors & processes that will largely determine their stock price moves over 2012 rather than the movements of the market.
Portfolio (as at 3/31 - all delta and leverage adjusted, as appropriate)
15.9% - Bond Funds (DLTNX and HSTRX)
5.2% - Value Idea Equities (THRX, and DRWI)
3.9% - Treasury Bonds (TLT)
2.3% - Energy Efficiency (AXPW, and XIDE)
1.7% - NCAV Equities
0.0% - Other Equities (none)
-1.9% - China-Related Thesis (40bps premium in EWZ Jan-13 puts)
-3.8% - Hedges/Put Options (22bps in IWM Jan-13 puts, 20bps in SPY Jan-13 puts and 15bps XLY Jan-13 puts)
-9.6% - Currencies (EUO – Short Euro)
65.2% - Cash
Disclaimer: For added clarity, Our Man is invested in all of the securities mentioned (TLT, DLTNX, HSTRX, THRX, DRWI, AXPW, XIDE, , EWZ puts, IWM puts, SPY puts, XLY puts, and EUO). He also holds some cash. 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.
