March 2014 Review

Portfolio Update
For more details on the changes to the portfolio, during February, please read the upcoming portfolio update.

- China Thesis:  The portfolio’s exposure to the Short Australian Dollar (CROC) position was substantially reduced early in the month.

- Equity: Two new positions, Dr Reddy’s (REDY) and Tata Motors (TTM), were added to the portfolio.

Performance Review 

The portfolio had a very weak month, despite the rise in equity markets, falling 172bps which put it into negative figures for the year (-0.5% YTD).

The vast majority of the losses came from the Equity book (-133bps), and within this book they were driven by the position in Theravance (THRX, cost 118bps).  Theravance suffered as high-performing growth stocks, including much of the Biotech sector (NASDAQ Biotech –11% for the month), were sold during the month.   In Theravance’s case, little has changed, the company still intends to split into two during in Q2-14, one of which will be a patent royalty company and the other a research-driven biotech company.  The weakness in growth stocks also explains why the Technical book (-9bps) was down, in a month when the S&P 500 rose; the losses in the Nasdaq position outweighed gains from Dow and S&P 500.

The China Thesis book also hurt the portfolio (-43bps), with the majority of the losses coming from the Short Australian Dollar position (though the heavy trimming of this position, helped limit the losses) as markets began to factor in potential Chinese stimulus and some revival in the Emerging Markets.  These factors also drove the Puts/Hedges book (-48bps), where the position in Brazil drove the entire loss as that market rallied very strongly.

The two main positive contributions came from the International/Country book (+41bps) and the Currencies (+30bps book).  The currencies book benefited from its Long US Dollar positioning (vs. Euro and Yen), with the Euro in particular suggesting that its recent rise may have turned.  The Euro weakness held by the International/Country book, though the exposure to Greece, Spain and Italy were aided by a mixture of the potential for QE-type action in Europe which was an underlying cause of that Euro weakness.

Finally, the remainder of the books had limited individual impact on the portfolio though there was a broad negative tilt; Absolute/Bond Funds (-5bps), NCAV (-7bps), Energy Efficiency (+2bps).

Portfolio (as at 3/31 - all delta and leverage adjusted, as appropriate) 

20.1% - Technical (DDM, SSO and QLD)
19.3% - International/Country (GREK, EWP and EWI)
13.7% - Bond/Absolute Return Funds (DLTNX and HSTRX)
13.4% - Equities (THRX, TTM, RDY & DRWI)
0.7% - NCAV Equities
0.2% - Energy Efficiency (AXPW, and XIDE)

-3.6% - Hedges/Put Options (premium of 61bps in EWZ Jan-15 puts, and 21bps in EWJ Jan-15 puts)

1.4% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares) 

-49.9% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)

13.5% - 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.