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.