2014 has largely been a year of missed opportunities for
OM, some unfortunate (e.g. what eventually turned out to be a false sell signal
in the Technical book) but most self-inflicted; predominantly mistakes of
omission than mistakes of commission. This is broadly represented
in a consistent theme that you’ve seen since Our Man started running the book;
a significant level of underinvestment, too often caused by OM waiting for the
perfect price to enter (or add to) a name rather than starting to build a
position at a good price (i.e. with a sufficient margin of safety) and seek to
build it should it decline further. Thus, the big aim for 2015 and 2016,
is to get better at this…
Some things that are interesting OM for 2015, and
beyond…
- International Book - Argentina: This is one of
those positions that falls into the mistakes of omission, since OM has been
waiting to put on a position since Argentina defaulted on its debt over the
summer. On the surface there’s very little good to say about Argentina;
the country is in an acrimonious fight with some bond hold-outs from its last
default resulting in another default, the economy is terrible with high inflation, a weakening currency (which trades
at both official vs. unofficial prices) and high interest rates.
Given that, why Our Man’s interest? Well, everyone knows all of the above
and despite the huge rally in stocks, they’re still cheap by any
definition. However, this is with good reason; high and volatile interest rates, mean banks
only lend short term, which means businesses on focus on the short-term and
eschew investments where the future return may be substantial. Ditto for
investors, who rightly value short-term cashflow or earnings far more heavily
than any future earnings, due to the high discount rate. The opportunity lies in that during 2015, there are ‘events’ that could change this paradigm; (i) it becomes a lot
easier to negotiate with the bond holdouts as the calendar turns to 2015 (due
to the expiration of a clause in the restructured bonds), and more importantly
(ii) the current President cannot seek a third term,
with all 3 major candidates promising a break from the Kirchner's (Cristina
Kirchner has been President since 2007, and her husband was President for the 4
years prior) style and policies. Therein lies the upside potential – the hope of a sensibly governed Argentina (perhaps even with an independent Central Bank), with its limited fiscal deficit and debt,
and having ability to return to international capital markets would lead to a falling in
the risk premium and corporations focusing on maximizing return (including
future growth) rather than just surviving. The downside, is yet more of
what we’ve already seen, which is largely priced into the markets. Given
the lack of a good ETF, OM began investing in a small basket of positions in
Argentina to get exposure during December.
- Equity - Oil/Gas related: The decimation in the
Energy markets has been amazing to watch, with the Russell 2000 Energy losing around half its value in the last 6 months and many individual names suffering far more heavily than that! The sharp fall in oil has also reopened many of the debates
about fracking and how the US Shale boom has been funded.
From a historical analog, there are certain similarities to what
happened in 1985/86, when an influx of new production from the North Sea
increased supply and saw the Saudis choose to maintain market share in a period
of weakish demand, leading to a 60%+ decline in WTI within a 6month period
despite ongoing Middle Eastern tensions;
for 2014, substitute in US Shale (where production increased 1mn barrels per
day in 2013, and likely 1.7mn bpd in 2014) for North Sea. In short, Our
Man thinks there are going to be things to do to in Energy during 2015, but
we’ve yet to see the numerous corporate casualties (other than in their stock prices) that
indicate it will be a better time to look for those that might be
winners. As such, OM’s exposure will continue to remain of the
toe-dipping variety, but don’t be surprised if you start to see some Energy
names in the Equity book next year.
- Equity – Internet: OM loves the Internet and at this point, who
doesn’t? Be it shopping, catching up on the highlights from the big game,
keeping in touch with family and friends or just doing one’s work, the Internet is
pervasive*. OM doubts it’s even an argument whether the Internet is this
generation’s defining contribution and theme**, and like many of the prior
themes it’s not only reshaping our world but is a key force of the deflationary
pressure that we’re seeing globally. The Tech Bubble of the late 90’s was
clearly the very early innings, but it’s hard to say how far into the game we
are currently. While OM loves the Internet, he struggles to buy positions
in a world where valuation is based on Total Addressable Markets (TAMs, or how big a company’s market
“could” be) that can be almost anything and where low rates mean the value of future growth
is vastly more important than the value of any profitability in the near-term
(i.e. $100 at the end of 5years is worth ~$62 today at a 10% discount rate vs.
~$90-$91 today at a 2% discount rate). Thus OM has only really been a
buyer of Internet stocks at times when they’ve been sold aggressively (e.g.
early last year); expect this to continue into 2015. But like this year's Internet exposure, OM hopes that each
time he invests in these sell-offs there will be a name or two that becomes longer-term holdings for the
portfolio (like VIPS and TWTR in 2014).
* Furthermore people have now largely accepted the Faustian bargain
of the Internet; that it is “free” to use and “cheap” to buy things on, BUT in
exchange for all your personal data, whose protection & safety is currently not a priority for anybody be it individuals or corporations.
**OM will leave it historians to argue how it compares to
the Railroad, the industrialization of manufacturing driven by oil/gas, the
Automobile, etc.
Saturday, December 20
Saturday, December 13
November 2014 Review
Portfolio Update
- Technical: Much to OM’s chagrin, the moves in the indices in early November confirmed that that the late-September/early-October signal had indeed been a false ‘sell’ signal. As such, OM is watching the market and looking for the right entry point to get back into the Technical book’s positions.
Performance Review
October proved a volatile month for the market, though somewhat less so for OM’s book, which ended +209bps for the month, putting the YTD performance at +6.0%.
The driver of performance was OM’s currency exposure, specifically the portfolio’s large Long US Dollar exposure. The Currencies book (+158bps) was up strongly on the month, driven by the position in YCS (Short Yen/Long USD) which contributed 140bps, most of which came very late in the month after the Japanese Central Bank announced plans to further increase their QE. The China Thesis (+90bps) saw contributions both from CROC (+55bps) as the Australian Dollar weakened, and from CAF (+35bps) as Chinese A-Shares strengthened.
Though the equity markets rose during October, OM’s equity proved unprofitable costing the portfolio around 64bps. The losses were caused by the Theravance positions (THRX/THBP, -41bps combined) as fears continued that the take-up of the products is below expecations, and the position in EOX (-52bps) which continued to fall together with the ever declining oil price. The Internation/Country book (+28bps) posted a healthy gain, while the Absolute/Bond Fund (+4bps), Puts/Hedges (0bps) and Energy Efficiency (-6bps) had limited impact on performance.
Portfolio (as at 11/30 - all delta and leverage adjusted, as appropriate)
18.7% - Equities (EOX, RDY, TBPH, THRX, TTM, TWTR & VIPS)
8.0% - International/Country (GREK & GVAL)
4.2% - Bond/Absolute Return Funds (DLTNX)
0.1% - Energy Efficiency (AXPW, and XIDE)
-0.0% - Hedges/Put Options (premium of less than 5bps EWZ and EWJ Jan-15 puts)
-14.8% - China-Related Thesis (CROC – Short Australian Dollar, partially offset by CAF – Long Chinese A-Shares)
-57.6% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
27.9% - 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.
- Technical: Much to OM’s chagrin, the moves in the indices in early November confirmed that that the late-September/early-October signal had indeed been a false ‘sell’ signal. As such, OM is watching the market and looking for the right entry point to get back into the Technical book’s positions.
Performance Review
October proved a volatile month for the market, though somewhat less so for OM’s book, which ended +209bps for the month, putting the YTD performance at +6.0%.
The driver of performance was OM’s currency exposure, specifically the portfolio’s large Long US Dollar exposure. The Currencies book (+158bps) was up strongly on the month, driven by the position in YCS (Short Yen/Long USD) which contributed 140bps, most of which came very late in the month after the Japanese Central Bank announced plans to further increase their QE. The China Thesis (+90bps) saw contributions both from CROC (+55bps) as the Australian Dollar weakened, and from CAF (+35bps) as Chinese A-Shares strengthened.
Though the equity markets rose during October, OM’s equity proved unprofitable costing the portfolio around 64bps. The losses were caused by the Theravance positions (THRX/THBP, -41bps combined) as fears continued that the take-up of the products is below expecations, and the position in EOX (-52bps) which continued to fall together with the ever declining oil price. The Internation/Country book (+28bps) posted a healthy gain, while the Absolute/Bond Fund (+4bps), Puts/Hedges (0bps) and Energy Efficiency (-6bps) had limited impact on performance.
Portfolio (as at 11/30 - all delta and leverage adjusted, as appropriate)
18.7% - Equities (EOX, RDY, TBPH, THRX, TTM, TWTR & VIPS)
8.0% - International/Country (GREK & GVAL)
4.2% - Bond/Absolute Return Funds (DLTNX)
0.1% - Energy Efficiency (AXPW, and XIDE)
-0.0% - Hedges/Put Options (premium of less than 5bps EWZ and EWJ Jan-15 puts)
-14.8% - China-Related Thesis (CROC – Short Australian Dollar, partially offset by CAF – Long Chinese A-Shares)
-57.6% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
27.9% - 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, November 16
October 2014 Review
Portfolio Update
- Technical: After September’s initial sell signal, the second trigger to sell (implying a correction is likely, i.e. 67%+) came during the first couple of days of October, and Our Man exited the Technical positions. This move looked inspired for the vast majority of the month, though the sharpness & strength of the rally (higher highs and higher lows, every day with a monotonous regularity, to a level beyond expectations) increasingly raised the prospect of this being a ‘false sell’ signal as we reached month-end.
- Equity: There were two small changes to the Equity portfolio; the first was that the position in TWTR was reduced slightly (this was the tail-end of the size reduction discussed last month, but which didn’t get filled during September). Secondly, while most of the carnage in the Energy sector has been warranted (especially if Oil stays near $80), there are (hopefully) a few opportunities, and to this end Our Man started to dabble by taking a very small position in EOX.
Performance Review
After a volatile month, the portfolio fell by 154bps putting the YTD performance at 3.8%
Despite the strong rally in the second half of the month, Our Man’s equity exposed buckets all suffered losses. The International/Country bucket (-118bps) was by far the largest negative contributor, suffering heavily during the risk-off moves during the first half of the month when GREK (Greece) fell almost 20%, and failing to recover during the sharp rally in the second half of the month.
The Technical book (-29bps) was also a negative contributor, after the positions were closed out in the first couple of days of the month. The Equities book (-42bps) was also a negative contributor, though more than 100% of the losses came from the positions in THRX and TBPH after the initial sales of their new products were at the low-end of expecations. The Energy Efficiency (-9bps) was a small negative contributor as Exide continues to move through its bankruptcy process. Finally, the Puts/Hedges book (-15bps) also lost money through both time decay and the underlyings moving slightly against it.
In the medium-term, the biggest news came from the Currency-related positions. Our Man has been bullish the US Dollar for some time, believing that post-2011 we are in the start of a big US Dollar rally rather another of the many bear market rallies that have dominated memories since it mid-80s peak. November saw some fundamental signs, that pointed to the increased possibility that this is coming to fruitition; while the US exited quantitative easing and the Fed now ostensibly discusses WHEN it might consider raising rates, Europe (where they are talking about starting some version of QE) and Japan (where on the final day in the month, they redoubled their QE efforts in the befuddling hope that doing more would make it would better) are headed in the opposite direction. The Currency book (+71bps) unsurprisingly gained from the weakness in the Euro and Yen, throughout the month. The China Thesis book (-14bps) posted a moderate loss, as the rise in Chinese A-shares (prior to them opening up a little more to foreign investors) did not offset the loss in the Short Australian Dollar position. The Absolute/Bond Fund (+3bps) was a marginal gainer.
Portfolio (as at 10/31 - all delta and leverage adjusted, as appropriate)
19.8% - Equities (EOX, RDY, TBPH, THRX, TTM, TWTR & VIPS)
7.8% - International/Country (GREK & GVAL)
4.3% - Bond/Absolute Return Funds (DLTNX)
0.2% - Energy Efficiency (AXPW, and XIDE)
-0.0% - Hedges/Put Options (premium of less than 5bps combined in EWZ Jan-15 puts and EWJ Jan-15 puts)
-12.6% - China-Related Thesis (CROC – Short Australian Dollar, partially offset by CAF – Long Chinese A-Shares)
-49.6% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
27.9% - 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.
- Technical: After September’s initial sell signal, the second trigger to sell (implying a correction is likely, i.e. 67%+) came during the first couple of days of October, and Our Man exited the Technical positions. This move looked inspired for the vast majority of the month, though the sharpness & strength of the rally (higher highs and higher lows, every day with a monotonous regularity, to a level beyond expectations) increasingly raised the prospect of this being a ‘false sell’ signal as we reached month-end.
- Equity: There were two small changes to the Equity portfolio; the first was that the position in TWTR was reduced slightly (this was the tail-end of the size reduction discussed last month, but which didn’t get filled during September). Secondly, while most of the carnage in the Energy sector has been warranted (especially if Oil stays near $80), there are (hopefully) a few opportunities, and to this end Our Man started to dabble by taking a very small position in EOX.
Performance Review
After a volatile month, the portfolio fell by 154bps putting the YTD performance at 3.8%
Despite the strong rally in the second half of the month, Our Man’s equity exposed buckets all suffered losses. The International/Country bucket (-118bps) was by far the largest negative contributor, suffering heavily during the risk-off moves during the first half of the month when GREK (Greece) fell almost 20%, and failing to recover during the sharp rally in the second half of the month.
The Technical book (-29bps) was also a negative contributor, after the positions were closed out in the first couple of days of the month. The Equities book (-42bps) was also a negative contributor, though more than 100% of the losses came from the positions in THRX and TBPH after the initial sales of their new products were at the low-end of expecations. The Energy Efficiency (-9bps) was a small negative contributor as Exide continues to move through its bankruptcy process. Finally, the Puts/Hedges book (-15bps) also lost money through both time decay and the underlyings moving slightly against it.
In the medium-term, the biggest news came from the Currency-related positions. Our Man has been bullish the US Dollar for some time, believing that post-2011 we are in the start of a big US Dollar rally rather another of the many bear market rallies that have dominated memories since it mid-80s peak. November saw some fundamental signs, that pointed to the increased possibility that this is coming to fruitition; while the US exited quantitative easing and the Fed now ostensibly discusses WHEN it might consider raising rates, Europe (where they are talking about starting some version of QE) and Japan (where on the final day in the month, they redoubled their QE efforts in the befuddling hope that doing more would make it would better) are headed in the opposite direction. The Currency book (+71bps) unsurprisingly gained from the weakness in the Euro and Yen, throughout the month. The China Thesis book (-14bps) posted a moderate loss, as the rise in Chinese A-shares (prior to them opening up a little more to foreign investors) did not offset the loss in the Short Australian Dollar position. The Absolute/Bond Fund (+3bps) was a marginal gainer.
Portfolio (as at 10/31 - all delta and leverage adjusted, as appropriate)
19.8% - Equities (EOX, RDY, TBPH, THRX, TTM, TWTR & VIPS)
7.8% - International/Country (GREK & GVAL)
4.3% - Bond/Absolute Return Funds (DLTNX)
0.2% - Energy Efficiency (AXPW, and XIDE)
-0.0% - Hedges/Put Options (premium of less than 5bps combined in EWZ Jan-15 puts and EWJ Jan-15 puts)
-12.6% - China-Related Thesis (CROC – Short Australian Dollar, partially offset by CAF – Long Chinese A-Shares)
-49.6% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
27.9% - 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.
Wednesday, October 8
September 2014 Review
Portfolio Update
- Technical: For the first time in a long-time (i.e. well before OM added the Technical book to the portfolio), the initial sell signal was triggered for all 3 of the indices in the Technical book. This trigger indicates that the probability of a noticeable correction is elevated (i.e. 40-50% of it happening) and typically OM would reduce the position here (to c20%) but given it’s only marginally larger than the target positon and the cost of doing so, no changes were made. Should a second trigger be seen (implying a correction is likely, i.e. 67%+) then the positions will be exited.
- Equity: Given the initial sell-signal triggered in the Technical Book, OM thought this would be an opportune time to exit out of most of lower conviction equity names, comprising of DRWI and a number of the Internet positions (P, PNQI, QIWI and some of the TWTR) put on during Q2. Of the Internet positions, only VIPS and (a reduced in size) TWTR remain.
Performance Review
For the month the portfolio fell 74bps, leaving it up 5.5% YTD.
It was a very broad spread month, though unsurprisingly the losses were largely concentrated in the equity-related books. The Equity book (-283bps) was the largest negative contributor, driven by the Theravance positions (THRX and TBPH) which cost c200bps – though there was no great news, the stocks are pretty speculative. The Intenet names cost the fund about 52bps, but were strong contributors for the period they were in the portfolio. The International/Country (-120bps) also suffered from the risk-off move during the month, with the position in GREK (Long Greek equity) driving the losses. The Technical book (-20bps) also fell during the month. The Puts/Hedges (+15bps) benefited from the falling market. The Absolute/Bond Funds (-1bp) were largely unchanged and the Energy Efficiency (+10bps) names posted a small profit, after a corprate action (reverse stock split, increasing the likelihood of a full market listing) in Axion Power.
The winners were centred on the currency related books, which were driven by the strength of the US Dollar. The Currencies book (+222bps) benefited pretty evenly from the rise in the Dollar against the Euro (on hopes of a Euro-version of QE) and Japan (where bad economic news, heightened hopes of further QE). The China Thesis (+104bps) was also driven by the US Dollar exposure, and the Australian Dollar’s weakness against it.
Portfolio (as at 9/30 - all delta and leverage adjusted, as appropriate)
21.9% - Technical (DDM, SSO and QLD)
19.5% - Equities (THRX, TBPH, TWTR, TTM, RDY, & VIPS)
8.9% - International/Country (GREK & GVAL)
4.2% - Bond/Absolute Return Funds (DLTNX)
0.3% - Energy Efficiency (AXPW, and XIDE)
-1.2% - Hedges/Put Options (premium of 18bps in EWZ Jan-15 puts, and 2bps in EWJ Jan-15 puts)
-12.4% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
-48.8% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
17.2% - 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.
- Technical: For the first time in a long-time (i.e. well before OM added the Technical book to the portfolio), the initial sell signal was triggered for all 3 of the indices in the Technical book. This trigger indicates that the probability of a noticeable correction is elevated (i.e. 40-50% of it happening) and typically OM would reduce the position here (to c20%) but given it’s only marginally larger than the target positon and the cost of doing so, no changes were made. Should a second trigger be seen (implying a correction is likely, i.e. 67%+) then the positions will be exited.
- Equity: Given the initial sell-signal triggered in the Technical Book, OM thought this would be an opportune time to exit out of most of lower conviction equity names, comprising of DRWI and a number of the Internet positions (P, PNQI, QIWI and some of the TWTR) put on during Q2. Of the Internet positions, only VIPS and (a reduced in size) TWTR remain.
Performance Review
For the month the portfolio fell 74bps, leaving it up 5.5% YTD.
It was a very broad spread month, though unsurprisingly the losses were largely concentrated in the equity-related books. The Equity book (-283bps) was the largest negative contributor, driven by the Theravance positions (THRX and TBPH) which cost c200bps – though there was no great news, the stocks are pretty speculative. The Intenet names cost the fund about 52bps, but were strong contributors for the period they were in the portfolio. The International/Country (-120bps) also suffered from the risk-off move during the month, with the position in GREK (Long Greek equity) driving the losses. The Technical book (-20bps) also fell during the month. The Puts/Hedges (+15bps) benefited from the falling market. The Absolute/Bond Funds (-1bp) were largely unchanged and the Energy Efficiency (+10bps) names posted a small profit, after a corprate action (reverse stock split, increasing the likelihood of a full market listing) in Axion Power.
The winners were centred on the currency related books, which were driven by the strength of the US Dollar. The Currencies book (+222bps) benefited pretty evenly from the rise in the Dollar against the Euro (on hopes of a Euro-version of QE) and Japan (where bad economic news, heightened hopes of further QE). The China Thesis (+104bps) was also driven by the US Dollar exposure, and the Australian Dollar’s weakness against it.
Portfolio (as at 9/30 - all delta and leverage adjusted, as appropriate)
21.9% - Technical (DDM, SSO and QLD)
19.5% - Equities (THRX, TBPH, TWTR, TTM, RDY, & VIPS)
8.9% - International/Country (GREK & GVAL)
4.2% - Bond/Absolute Return Funds (DLTNX)
0.3% - Energy Efficiency (AXPW, and XIDE)
-1.2% - Hedges/Put Options (premium of 18bps in EWZ Jan-15 puts, and 2bps in EWJ Jan-15 puts)
-12.4% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
-48.8% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
17.2% - 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.
Wednesday, September 17
August 2014 Review
Portfolio
Update
- China Thesis: With data out of China continuing to be tepid and signs that the US is at the beginning of the end of its monetary easing policy, OM scaled back up his Short Australian Dollar position (CROC) in the middle part of the month.
Performance Review
Aided by buoyant Equity markets, and a strengthening US Dollar, August proved a very healthy month for the portfolio which rose 4.0%, putting the year-to-date performance at 6.3%.
As noted, the strong equity markets were very beneficial to the portfolio. The Equities (+249bps) was the largest contributor to performance, with strong contributions from RDY and THRX (both Healthcare-related names), TTM (Jaguar/Land Rover sales continue to go well) and a number of the Internet names (especially TWTR). Our Man is nearer exiting some of the positions in this book, mainly some of the Internet-related ones which were added after the large fall in the space in April/May. The Technical book, through its leveraged index positions, added 89bps to performance.
The main economic event of the month was the annual conclave of Central Banker types at Jackson Hole, from where folks got the continued sense that the US is coming (albeit slowly and reluctantly) towards the end of its easing cycle, but where Mario Draghi (President of the European Central Bank) opened the door to further easing in Europe. Coupled with further mediocre news on the Japanese economy, the result of all of this, was a bunch of Euro and Yen weakness and some Dollar-strength. The Currencies book (+76bps) was a grateful beneficiary.
Elsewhere, much ado about nothing. Absolute Return/Bond Funds (+4bps) and the International/Country book (+9bps) helped performance, while the Puts/Hedges (-13bps, markets kept going up), Energy Efficiency (-2bps) and China Thesis (-13bps, mainly from the weakness in Chinese A-Shares) hurt.
Portfolio (as at 8/31 - all delta and leverage adjusted, as appropriate)
32.7% - Equities (THRX, TBPH, PNQI, TWTR, TTM, RDY, VIPS, QIWI, P & DRWI)
- China Thesis: With data out of China continuing to be tepid and signs that the US is at the beginning of the end of its monetary easing policy, OM scaled back up his Short Australian Dollar position (CROC) in the middle part of the month.
Performance Review
Aided by buoyant Equity markets, and a strengthening US Dollar, August proved a very healthy month for the portfolio which rose 4.0%, putting the year-to-date performance at 6.3%.
As noted, the strong equity markets were very beneficial to the portfolio. The Equities (+249bps) was the largest contributor to performance, with strong contributions from RDY and THRX (both Healthcare-related names), TTM (Jaguar/Land Rover sales continue to go well) and a number of the Internet names (especially TWTR). Our Man is nearer exiting some of the positions in this book, mainly some of the Internet-related ones which were added after the large fall in the space in April/May. The Technical book, through its leveraged index positions, added 89bps to performance.
The main economic event of the month was the annual conclave of Central Banker types at Jackson Hole, from where folks got the continued sense that the US is coming (albeit slowly and reluctantly) towards the end of its easing cycle, but where Mario Draghi (President of the European Central Bank) opened the door to further easing in Europe. Coupled with further mediocre news on the Japanese economy, the result of all of this, was a bunch of Euro and Yen weakness and some Dollar-strength. The Currencies book (+76bps) was a grateful beneficiary.
Elsewhere, much ado about nothing. Absolute Return/Bond Funds (+4bps) and the International/Country book (+9bps) helped performance, while the Puts/Hedges (-13bps, markets kept going up), Energy Efficiency (-2bps) and China Thesis (-13bps, mainly from the weakness in Chinese A-Shares) hurt.
Portfolio (as at 8/31 - all delta and leverage adjusted, as appropriate)
32.7% - Equities (THRX, TBPH, PNQI, TWTR, TTM, RDY, VIPS, QIWI, P & DRWI)
22.1% -
Technical (DDM, SSO and QLD)
10.1% - International/Country (GREK & GVAL)
4.1% - Bond/Absolute Return Funds (DLTNX and HSTRX)
0.2% - Energy Efficiency (AXPW, and XIDE)
-0.2% - Hedges/Put Options (premium of 3bps in EWZ Jan-15 puts, and 2bps in EWJ Jan-15 puts)
-12.4% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
-48.5% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
6.5% - 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
10.1% - International/Country (GREK & GVAL)
4.1% - Bond/Absolute Return Funds (DLTNX and HSTRX)
0.2% - Energy Efficiency (AXPW, and XIDE)
-0.2% - Hedges/Put Options (premium of 3bps in EWZ Jan-15 puts, and 2bps in EWJ Jan-15 puts)
-12.4% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
-48.5% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
6.5% - 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, August 17
July 2014 Review
Portfolio Update
- International/Country: Our Man exited his positions in both Italy (EWI) and Spain (EWP) during the second half of the month. Both had been good performers for the portfolio in the 12-18months that we held them (especially EWP, which returned 50%+), so why sell? It’s a combination of a couple of things; from those OM speaks to, opinion on Europe seems rather uniformly positive with too many folks claiming this is the start of a new bull market (sadly, bull markets rarely ever start when everyone proclaims them to be starting, see 2009) – this combined, with the deteriorating technical of markets across Europe (not just Spain/Italy, but France and Germany too amongst others), still mixed/mediocre macro and company news, and the increased nervousness OM has over the various larger issues in the world, made it seem like a good time to step away.
- Absolute Return/Bond Funds: Our Man closed out the small position in HSTRX.
Performance Review
The portfolio fell 2.02%, leaving it at +2.2% for the year.
However, despite the magnitude of the loss it was actually a quiet month for the book. The Equities book (-235bps) represented the key detractor from performance, and within that book it was the position in THRX (which cost c205bps) that drove performance. THRX gave back much of recent gains on a mixture of negative press regarding uncertainty as to the speed of take-up and potential market size of its drugs which could impact the ability of the company to maintain (and increase) the dividend, and investors exiting the name following the recent spin-off. The rest of the Equities book was largely flat, though DRWI (-25bps) continued to struggle following the recent fundraise, while the Internet-related names added this year posted a marginal positive contribution.
As noted, the majority of the books had limited impact on the portfolio. The Absolute Return/Bond Funds (-1bps), Puts/Hedges (-9bps), Technical (-11bps) and Energy Efficiency (-3bps) all posted small losses, which were offset by the gain in China Thesis book (+35bps, on the back of strong Chinese A-share performance). The International/Country book (-67bps) was a noticeable detractor as European markets weakened significantly, though the exiting of the positions in Spain/Italy during the middle of the month helped constrain the impact. The weakness in Europe also saw the Euro weaken, which drove the positive performance in the Currencies book (+89bps).
Portfolio (as at 7/31 - all delta and leverage adjusted, as appropriate)
31.6% - Equities (THRX, TBPH, PNQI, TWTR, TTM, RDY, VIPS, QIWI, P & DRWI)
21.2% - Technical (DDM, SSO and QLD)
10.4% - International/Country (GREK & GVAL)
4.3% - Bond/Absolute Return Funds (DLTNX and HSTRX)
0.2% - Energy Efficiency (AXPW, and XIDE)
-0.4% - Hedges/Put Options (premium of 17bps in EWZ Jan-15 puts, and 2bps in EWJ Jan-15 puts)
2.0% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
-48.9% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
14.2% - 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.
- International/Country: Our Man exited his positions in both Italy (EWI) and Spain (EWP) during the second half of the month. Both had been good performers for the portfolio in the 12-18months that we held them (especially EWP, which returned 50%+), so why sell? It’s a combination of a couple of things; from those OM speaks to, opinion on Europe seems rather uniformly positive with too many folks claiming this is the start of a new bull market (sadly, bull markets rarely ever start when everyone proclaims them to be starting, see 2009) – this combined, with the deteriorating technical of markets across Europe (not just Spain/Italy, but France and Germany too amongst others), still mixed/mediocre macro and company news, and the increased nervousness OM has over the various larger issues in the world, made it seem like a good time to step away.
- Absolute Return/Bond Funds: Our Man closed out the small position in HSTRX.
Performance Review
The portfolio fell 2.02%, leaving it at +2.2% for the year.
However, despite the magnitude of the loss it was actually a quiet month for the book. The Equities book (-235bps) represented the key detractor from performance, and within that book it was the position in THRX (which cost c205bps) that drove performance. THRX gave back much of recent gains on a mixture of negative press regarding uncertainty as to the speed of take-up and potential market size of its drugs which could impact the ability of the company to maintain (and increase) the dividend, and investors exiting the name following the recent spin-off. The rest of the Equities book was largely flat, though DRWI (-25bps) continued to struggle following the recent fundraise, while the Internet-related names added this year posted a marginal positive contribution.
As noted, the majority of the books had limited impact on the portfolio. The Absolute Return/Bond Funds (-1bps), Puts/Hedges (-9bps), Technical (-11bps) and Energy Efficiency (-3bps) all posted small losses, which were offset by the gain in China Thesis book (+35bps, on the back of strong Chinese A-share performance). The International/Country book (-67bps) was a noticeable detractor as European markets weakened significantly, though the exiting of the positions in Spain/Italy during the middle of the month helped constrain the impact. The weakness in Europe also saw the Euro weaken, which drove the positive performance in the Currencies book (+89bps).
Portfolio (as at 7/31 - all delta and leverage adjusted, as appropriate)
31.6% - Equities (THRX, TBPH, PNQI, TWTR, TTM, RDY, VIPS, QIWI, P & DRWI)
21.2% - Technical (DDM, SSO and QLD)
10.4% - International/Country (GREK & GVAL)
4.3% - Bond/Absolute Return Funds (DLTNX and HSTRX)
0.2% - Energy Efficiency (AXPW, and XIDE)
-0.4% - Hedges/Put Options (premium of 17bps in EWZ Jan-15 puts, and 2bps in EWJ Jan-15 puts)
2.0% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
-48.9% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
14.2% - 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, July 6
June 2014 Review
Portfolio Update
Performance Review
June proved the first month in a while that the portfolio significantly outperformed the market, rising +5.11%, which puts the YTD performance at +4.3%.
- None
Performance Review
June proved the first month in a while that the portfolio significantly outperformed the market, rising +5.11%, which puts the YTD performance at +4.3%.
The entirety of the
portfolio’s performance came from the Equity Book (+519bps), with winners being
broad spread across the book. As noted
in recent months, THRX (Theravance) spun-off TBPH (Theravance BioPharma) –
while the stock(s) had fallen into the spin-off (on limited news), they rallied
strongly during June after it was completed (on limited news), more than
recouping their losses and contributing 183bps and 91bps respectively to the
portfolio. The Internet-related names,
which were added to the portfolio during the Mar-Apr pullback, added a combined
178bps as the sector continued to rally strongly, with TWTR (+88bps) leading
the way. Finally, the position in DRWI
contributed 33bps, after the stock rallied after the company won a contract and
raised guidance – perhaps, after a long period of disappointment, the company
might finally be poised to take advantage of its technology.
Elsewhere, the portfolio
largely broke-even – with markets rising, the Technical Book (+40bps) helped
performance, and there were marginal contributions from the Absolute/Bond Funds
(+3bps), Energy Efficiency (+2bps) and China Thesis (<+1bp). Offsetting these were the
International/Country book (-14bps, poor performance in the European periphery),
Currencies (-26bps, weaker dollar) and the Puts/Hedges book (-12bps, rising
markets and low volatility).
Portfolio (as at 6/30 - all
delta and leverage adjusted, as appropriate)
31.7% - Equities (THRX, PNQI, TWTR,
TTM, RDY, VIPS, QIWI, P & DRWI)
21.5% - Technical (DDM, SSO and
QLD)
20.5% - International/Country (GREK,
EWP, EWI & GVAL)
5.7%
- Bond/Absolute Return Funds (DLTNX and HSTRX)
0.2% - Energy Efficiency (AXPW, and XIDE)
-1.3% - Hedges/Put Options (premium of 25bps in EWZ Jan-15 puts, and 4bps in EWJ Jan-15 puts)
1.5% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
0.2% - Energy Efficiency (AXPW, and XIDE)
-1.3% - Hedges/Put Options (premium of 25bps in EWZ Jan-15 puts, and 4bps in EWJ Jan-15 puts)
1.5% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
-48.8% - Currencies (EUO – Short
Euro, YCS – Short Japanese Yen)
3.5% - 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.
Monday, June 23
Things from my Newsblur: June 2014 Edition
- Tickets for Restaurants
- An Oral History of Ghostbusters
The in-depth story about
why Alinea, Next and the Aviary moved to a ticketing system for their bookings
as opposed to the standard restaurant reservation system (or using
OpenTable). While it’s long, it’s a
great in-depth explanation that explores the qualitative reasons for making
such a move and provides a lot of interesting data that helps show the impact
of the move. I won’t be surprise if a
number of restaurants (especially higher-end ones) move to such a system in the
coming years! (Nick Kokonas, Alinea)
Ever wondered about how
lucrative (spoiler alert: unless you
make your LPs good money, it isn’t!) it is to run a small VC fund? Well, in an extraordinarily transparent post,
Charlie O’Donnell walks you through the economics of his small fund! (Charlie O’Donnell, This is Going to be BIG)
Fred Wilson’s one of the best
known and (with his partners) most successful venture capitalists on the East
Coast (and I suspect the US & world).
He also writes a blog,
where he posts every day which should be required reading for those budding
entrepreneurs out there, those who work for/with them, and those that invest in
them (and I guess, just folks who want to learn/know stuff). Here’s the transcript (on his blog) of a
recent interview he did with Business Insider (Alyson Shontell and Fred Wilson,
Business Insider and A VC respectively).
Uber’s been in the news
recently, with protests in Europe’s and the firm’s claims that the “median
small business income” with Uber X in NYC is $90,000+. Here, Justin Singer goes into the numbers and
unsurprisingly finds that the numbers are rather generous (essentially it’s
more of a revenue figure, than an income one), and leads to some more general
questions about Uber’s future. (Justin
Singer, Justin-singer.org)
Our Man’s
mentioned that oral histories are all the rage, but after the recent one on Trading
Places, how could he not indulge you with the one on Ghostbusters. Is seemed like it was a mess to make, but a
LOT of fun! Anyways, who you gonna
call? (Justin Matloff, Esquire)
In a 2001 speech on
British race and identity, Robin Cook (then the British Foreign Secretary) said
"Chicken Tikka Massala is now a true British national dish, not only because it is the most popular, but because it is a perfect illustration of theway Britain absorbs and adapts external influences."
Unfortunately, the
commonly told story behind its origination isn’t entirely (or at all)
true! (Mark Hay, Roads & Kingdoms)
It still
boggles Our Man’s mind that when he was getting his MBA, Henry Singleton’s name
never came up – given he was one of the great entrepreneurs, businessmen and
capital allocators in the 20th century! If you invested in Teledyne stock in 1966, you’d
have had a 53x return on invested capital over the next 25yrs (vs. 6.7x for the
S&P 500, and 9.0x for GE). Here’s the
closest thing to a case study on Singleton, and his conglomerate Teledyne. (John Chew, CS Investing via Value Walk)
Saturday, June 14
May 2014 Review
Portfolio Update
- Equity: The two changes to the portfolio both came in the Equity book, with OM adding to the positions in THRX and TWTR in the middle of the month. THRX is splitting itself into 2 separate companies (a royalty management one and a pure biotech research one) in early June. TWTR offered an interesting technical point; during May, its stock touched $29.51 putting it down around 61% from its post-IPO peak ($74.73) in late-2013, a very similar amount to the level Facebook fell (from $45 to $17.55) post its IPO to its eventual trough in 2012.
Performance Review
May proved the first unabashedly positive month in a while for the portfolio, which rose 1.92% during the month to bring it’s YTD performance to -0.8%.
The portfolio was able to benefit from the rise of Equity markets, especially in the US, most obviously through the index-linked Technical book (+53bps). The Equity book (+130bps) was also a strong contributor, driven by positions in THRX (+51bps), and the Internet-related positions which added +113bps (QIWI +86bps after some favorable rulings in Russia, and VIPS +33bps helped, while TWTR -36bps cost money despite rising in the latter part of the month), though this was partially offset by the position in RDY (-30bps). European markets failed to perform as well as the US, in part due to the uncertainty in Ukraine, and the International/Country book cost -9bps. Unsurprisingly, the Puts/Hedges book (-29bps) was a negative contributor.
The Currencies book (+34bps) performed well, driven by the Short Euro position (EUO +45bps) as speculation continued that in addition to the announced measures, the ECB would continue with further monetary easing.
The rest of the portfolio has more limited exposure, but the books were small positive contributors; Absolute/Bond Funds (+6bps), China Thesis (+5bps) and Energy Efficiency (+1bp)
Portfolio (as at 5/31 - all delta and leverage adjusted, as appropriate)
3.5% - 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.
- Equity: The two changes to the portfolio both came in the Equity book, with OM adding to the positions in THRX and TWTR in the middle of the month. THRX is splitting itself into 2 separate companies (a royalty management one and a pure biotech research one) in early June. TWTR offered an interesting technical point; during May, its stock touched $29.51 putting it down around 61% from its post-IPO peak ($74.73) in late-2013, a very similar amount to the level Facebook fell (from $45 to $17.55) post its IPO to its eventual trough in 2012.
Performance Review
May proved the first unabashedly positive month in a while for the portfolio, which rose 1.92% during the month to bring it’s YTD performance to -0.8%.
The portfolio was able to benefit from the rise of Equity markets, especially in the US, most obviously through the index-linked Technical book (+53bps). The Equity book (+130bps) was also a strong contributor, driven by positions in THRX (+51bps), and the Internet-related positions which added +113bps (QIWI +86bps after some favorable rulings in Russia, and VIPS +33bps helped, while TWTR -36bps cost money despite rising in the latter part of the month), though this was partially offset by the position in RDY (-30bps). European markets failed to perform as well as the US, in part due to the uncertainty in Ukraine, and the International/Country book cost -9bps. Unsurprisingly, the Puts/Hedges book (-29bps) was a negative contributor.
The Currencies book (+34bps) performed well, driven by the Short Euro position (EUO +45bps) as speculation continued that in addition to the announced measures, the ECB would continue with further monetary easing.
The rest of the portfolio has more limited exposure, but the books were small positive contributors; Absolute/Bond Funds (+6bps), China Thesis (+5bps) and Energy Efficiency (+1bp)
Portfolio (as at 5/31 - all delta and leverage adjusted, as appropriate)
29.9% - Equities (THRX, PNQI,
TTM, TWTR, RDY, QIWI, VIPS, P & DRWI)
21.3% - Technical (DDM, SSO and
QLD)
21.2% - International/Country (GREK,
EWP, EWI & GVAL)
5.8%
- Bond/Absolute Return Funds (DLTNX and HSTRX)
0.2% - Energy Efficiency (AXPW, and XIDE)
-2.9% - Hedges/Put Options (premium of 36bps in EWZ Jan-15 puts, and 6bps in EWJ Jan-15 puts)
1.5% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
-50.0% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
-2.9% - Hedges/Put Options (premium of 36bps in EWZ Jan-15 puts, and 6bps in EWJ Jan-15 puts)
1.5% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
-50.0% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)
3.5% - 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.
Saturday, May 10
April 2014 Review
Portfolio Update
Performance Review
April saw the most volatile month in the portfolio’s history, which largely reflected the increased exposure to markets. The portfolio ended the month down -2.19%, putting the YTD at –2.7%.
For more details on the changes to the portfolio, during April, please read the previous portfolio update.
- International Book: Our
Man added the Cambria Global Value ETF (GVAL) which seeks to invest in regions
with low CAPEs.
- Equity Book: Trying to take advantage of the recent
pull-back in Internet-related names, Our Man added PNQI (Powershares Internet
Portfolio), TWTR, VIPS, P and QIWI.
Performance Review
April saw the most volatile month in the portfolio’s history, which largely reflected the increased exposure to markets. The portfolio ended the month down -2.19%, putting the YTD at –2.7%.
The losses were broadly
spread across the portfolio, with the main drivers being the International book
(-32bps), the Currencies book (-42bps) and especially the Equity book
(-137bps). The losses in the Equity book were driven by
the exposure to THRX and the Internet stocks (listed above). Both were impacted by a continuation of March’s
move away from growth-orientated or higher risk names. THRX, a biotech stock, suffered from this
though the company continues to move to split itself into 2 (a royalty-driven
company from its existing therapies, and a biotech firm based on its product
pipeline) which will go ahead during May, and will likely see the 2 ‘new’ stocks
move very differently. The old adage
about catching knives costing fingers rang true in April, with the Internet
stocks hurting the portfolio, with 4 of the 5 posting negative returns during the
month (though all 5 were profitable until the final week of the month).
The International book’s
losses came entirely from its position in Greece (GREK), its largest exposure,
with small positive contributions from exposure to Spain (EWP) and Italy (EWI)
failing to significantly offset this loss.
There’s been no change to the book, though both Spain and Italy are a
little closer to being reduced in size (given the nature of their moves over
the last 12-18mos) than Greece. The Currencies
book suffered as the Dollar’s meandering continued, with the positions Short Yen
(YCS) and Short Euro (EUO) both hurting the fund. The Yen’s move was largely in the broad trading
range that it’s been bouncing around within.
While the Euro strengthened during the month it also exhibited signs of
forming a top, something that would be more likely if Draghi’s promise to “do
whatever it takes” (i.e. some QE-equivalent) proved to be more than empty words.
The rest of the books
were largely flat on the month, with limited contributions. The Absolute/Bonds Funds (+11bps) benefited
from the strength in Treasuries, the NCAV book (-5bps) saw its sole position
fall slightly before being closed out, and the China Thesis (-3bps) and Energy
Efficiency (-4bps) books both posted small losses. The Technical Book (+5bps) benefited from the
rising markets, though the weakness of the NASDAQ prevented it from keeping up
with the markets, and the Puts/Hedges books (-13bps) suffered as Brazil rallied
strongly.
Portfolio (as at 4/30 - all
delta and leverage adjusted, as appropriate)
25.4% - Equities (THRX, PNQI,
TTM, RDY, QIWI, VIPS, TWTR, P & DRWI)
21.7% - International/Country (GREK,
EWP, EWI & GVAL)
20.6% - Technical (DDM, SSO and
QLD)
5.9%
- Bond/Absolute Return Funds (DLTNX and HSTRX)
0.2% - Energy Efficiency (AXPW, and XIDE)
-3.1% - Hedges/Put Options (premium of 51bps in EWZ Jan-15 puts, and 19bps in EWJ Jan-15 puts)
1.4% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
0.2% - Energy Efficiency (AXPW, and XIDE)
-3.1% - Hedges/Put Options (premium of 51bps in EWZ Jan-15 puts, and 19bps in EWJ Jan-15 puts)
1.4% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares)
-51.0% - Currencies (EUO – Short
Euro, YCS – Short Japanese Yen)
7.4% - 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, April 13
Portfolio Update – February & March 2014
February & March saw the some changes to the portfolio in some time, so it seemed sensible to use an entire post to explain what’s going on.
China Thesis
As you all know, Our Man has been bearish on China for
some time and this has been expressed intermittently in the portfolio,
primarily through this sleeve of the book. For the last 6-12mos, the
chosen expression of this theme has been a Short Australian Dollar position,
where the risk of potential stimulus in China has been partially offset through
a Long Chinese A-Shares position. It has broadly worked reasonably well,
with the China Thesis book contributing >50bps+, over the last 6-12mos and
both sides of the trade contributing to performance. However, with the
decline in the Australian Dollar from above parity (A$1>$1.04) in Q2-14 to
well below parity (A$1 <$0.87) in early 2014, and the public discourse
(read: breathless CNBC discussions) surrounding the fears of weaker China
growth, Our Man decided to reposition this book. This was done through
substantially reducing his Short Australia Dollar position, with the hope of
being able to rebuild it later in the year at a better price (i.e. just below
parity), while retaining the Long Chinese A-Shares position (in case there is
any government stimulus to help the economy).
Equity Book:
Equity Book:
Those who know Our Man, know that he’s fascinated by India as a potential
investment arena for the next decade or two; it’s a country (and market) that
comes with vast opportunity (demographics, size, consumer behavior, education/technologically
advanced workforce, solid legal process, etc) as well as many challenges
(governmental issues, slow legal process, a bifurcated market between
large/small cos where foreign inflows can exert too much influence, etc).
Our Man was hoping to find a suitable ETF or Mutual Fund to express this view
through but was unable to find anything of great interest, though the search
did lead to a some interesting stock ideas (US-listed ADRs), which resulted in
2 new positions for the fund.
- Dr Reddy's (RDY): Dr. Reddy’s has achieved meaningful scale as a manufacturer of complex generic drugs, many of which have limited competition (it’s focus is largely on delivery forms other than solid dose/pills). At year-end, the firm had a strong pipeline with 62 drugs pending FDA approval (39 are in the 180-day exclusivity bracket, and 9 were first to file products), and the US already generates 40% of sales (c$800mn) having grown almost 20% in 2013. These all hint at some useful future traits (pricing power and growth) to supplement a strong existing business (60% gross margins and 20% EBITDA margins, on average over the last 6yrs)
- Tata Motors (TTM): Tata Motors is known as the manufacturer of the cheapest car in the world (the Nano) and one of the largest commercial vehicle manufacturers globally. Most people don’t realize that it is also the holding company for 2 very well-known luxury banks; Jaguar and Land Rover (JLR), which represent the vast majority of revenue and all of the group’s profits. With new models and refreshments of existing lines being key drivers of car sales, Our Man likes that JLR has a half-dozen+ coming out in the next couple of years, the reduced risk of cannibalization (Jaguar’s sales are 450K units/year) and the opportunity for JLR given the huge holes in JLR’s line-up (no convertible till the F-type came out, no station wagon/estate product in Europe despite it being 60% of the sedan market, no all-wheel drive Jaguar, despite all-wheel drive being 40% of North American sedan sales, etc). These new launches, coupled with the ongoing rationalization of manufacturing (starting factories in China and Brazil) helps create interesting operating leverage. With the business being profitable as is (Jaguar is too small so breaks even, but Land Rover is exceptionally profitable) and at an attractive price (10x this year’s earnings), Our Man has started a position.
- Internet Names: The recent sell-off in markets has been centered on those stocks that (i) are primarily growth stories (i.e. a large part of today’s value comes from what investors expect to happen over the next 5-7years) and (ii) have performed very strongly over the last 6-12months. Numerous reasons have been posited for their decline including the prospect may increase rates earlier than previously expected (meaning a $ of profit 5-7 years in the future, is worth less today than it was before), increased risk aversion (blamed on Russia-Ukraine), that the names were over-owned and suffered from profit-taking and the lack of natural new buyers. While there are certainly elements of truth to all of these factors, and the valuations of this group of companies is still rich, there’s likely some opportunity to take advantage of the very negative sentiment and hold some of the names (at least for the next 6-12mos). As such, Our Man started positions in PNQI (an ETF of a number of large well-known Internet names, think Amazon, Facebook, Ebay, etc), P (Pandora; online radio), and TWTR (Twitter; though OM doesn’t tweet) in the US. OM also bought 2 US-listed, but more internationally focused named within the group, QIWI (QIWI; a provider of payment services in Russia and the CIS, which interests OM given the low trust in Banks in the region…think a complicated mix of Visa/Mastercard, MPesa, Moneygram, etc) and VIPS (Vipshop Holdings; a Chinese online discount retailer…think the online TJ Maxx of China). In total these new positions represent c12.5% of the portfolio, with the PDXI being the largest component of this (and the others being roughly equal in size).
International Book
Our Man has long been a fan of CAPE (Cyclically-Adjusted PE ratio) as a good signpost for whether a market is cheap and where one should look for ideas. Thus, Our Man was very excited by the launch of the new Cambria Global Value ETF; Meb Faber and Cambria have done some of the better CAPE work on global markets and this ETF takes advantage of that…buying the cheapest ($200mn+ market cap) stocks, in the cheapest (CAPE) markets globally. Given the small size of the ETF, the initial position has been restricted to 2.5% (+/- 0.75%, meaning Our Man would be a buyer if it fell to a c1.75% position and would take profits if it grew to c3.25%).
Absolute/Bond Funds
With the possibility of higher rates (at the short-end at least) in the coming months, and the fund’s exposure to tighter credit spreads (and gold/gold miners in the case of HSTRX), Our Man decided to reduce his weighting to the 2 bond orientated funds in the book.
NCAV
The NCAV screen was run, and found no names that met the eligible criteria. Furthermore, with IMN having been in the NCAV portfolio for over a year since it last came upon the screens, it was sold (as per the NCAV book’s rules). As a result, the NCAV book currently has no positions.
Technical Book
The initial sell signals we saw in late January were invalidated by the subsequent rally in February and so, despite the market weakness of the last week or two, we wait for new initial sell signals. While the Dow and S&P may show one (after a rise to new highs), the Nasdaq is the furthest away despite being the epicenter of the recent downturn in the market.
Disclaimer: For added clarity, as indicated in the post, Our Man is invested in almost all of the securities mentioned. He also holds some cash and other securities too. 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.
- Dr Reddy's (RDY): Dr. Reddy’s has achieved meaningful scale as a manufacturer of complex generic drugs, many of which have limited competition (it’s focus is largely on delivery forms other than solid dose/pills). At year-end, the firm had a strong pipeline with 62 drugs pending FDA approval (39 are in the 180-day exclusivity bracket, and 9 were first to file products), and the US already generates 40% of sales (c$800mn) having grown almost 20% in 2013. These all hint at some useful future traits (pricing power and growth) to supplement a strong existing business (60% gross margins and 20% EBITDA margins, on average over the last 6yrs)
- Tata Motors (TTM): Tata Motors is known as the manufacturer of the cheapest car in the world (the Nano) and one of the largest commercial vehicle manufacturers globally. Most people don’t realize that it is also the holding company for 2 very well-known luxury banks; Jaguar and Land Rover (JLR), which represent the vast majority of revenue and all of the group’s profits. With new models and refreshments of existing lines being key drivers of car sales, Our Man likes that JLR has a half-dozen+ coming out in the next couple of years, the reduced risk of cannibalization (Jaguar’s sales are 450K units/year) and the opportunity for JLR given the huge holes in JLR’s line-up (no convertible till the F-type came out, no station wagon/estate product in Europe despite it being 60% of the sedan market, no all-wheel drive Jaguar, despite all-wheel drive being 40% of North American sedan sales, etc). These new launches, coupled with the ongoing rationalization of manufacturing (starting factories in China and Brazil) helps create interesting operating leverage. With the business being profitable as is (Jaguar is too small so breaks even, but Land Rover is exceptionally profitable) and at an attractive price (10x this year’s earnings), Our Man has started a position.
- Internet Names: The recent sell-off in markets has been centered on those stocks that (i) are primarily growth stories (i.e. a large part of today’s value comes from what investors expect to happen over the next 5-7years) and (ii) have performed very strongly over the last 6-12months. Numerous reasons have been posited for their decline including the prospect may increase rates earlier than previously expected (meaning a $ of profit 5-7 years in the future, is worth less today than it was before), increased risk aversion (blamed on Russia-Ukraine), that the names were over-owned and suffered from profit-taking and the lack of natural new buyers. While there are certainly elements of truth to all of these factors, and the valuations of this group of companies is still rich, there’s likely some opportunity to take advantage of the very negative sentiment and hold some of the names (at least for the next 6-12mos). As such, Our Man started positions in PNQI (an ETF of a number of large well-known Internet names, think Amazon, Facebook, Ebay, etc), P (Pandora; online radio), and TWTR (Twitter; though OM doesn’t tweet) in the US. OM also bought 2 US-listed, but more internationally focused named within the group, QIWI (QIWI; a provider of payment services in Russia and the CIS, which interests OM given the low trust in Banks in the region…think a complicated mix of Visa/Mastercard, MPesa, Moneygram, etc) and VIPS (Vipshop Holdings; a Chinese online discount retailer…think the online TJ Maxx of China). In total these new positions represent c12.5% of the portfolio, with the PDXI being the largest component of this (and the others being roughly equal in size).
International Book
Our Man has long been a fan of CAPE (Cyclically-Adjusted PE ratio) as a good signpost for whether a market is cheap and where one should look for ideas. Thus, Our Man was very excited by the launch of the new Cambria Global Value ETF; Meb Faber and Cambria have done some of the better CAPE work on global markets and this ETF takes advantage of that…buying the cheapest ($200mn+ market cap) stocks, in the cheapest (CAPE) markets globally. Given the small size of the ETF, the initial position has been restricted to 2.5% (+/- 0.75%, meaning Our Man would be a buyer if it fell to a c1.75% position and would take profits if it grew to c3.25%).
Absolute/Bond Funds
With the possibility of higher rates (at the short-end at least) in the coming months, and the fund’s exposure to tighter credit spreads (and gold/gold miners in the case of HSTRX), Our Man decided to reduce his weighting to the 2 bond orientated funds in the book.
NCAV
The NCAV screen was run, and found no names that met the eligible criteria. Furthermore, with IMN having been in the NCAV portfolio for over a year since it last came upon the screens, it was sold (as per the NCAV book’s rules). As a result, the NCAV book currently has no positions.
Technical Book
The initial sell signals we saw in late January were invalidated by the subsequent rally in February and so, despite the market weakness of the last week or two, we wait for new initial sell signals. While the Dow and S&P may show one (after a rise to new highs), the Nasdaq is the furthest away despite being the epicenter of the recent downturn in the market.
Disclaimer: For added clarity, as indicated in the post, Our Man is invested in almost all of the securities mentioned. He also holds some cash and other securities too. 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.
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