2020: First Quarter Update

Portfolio Update

The rationale behind most of Our Man’s main portfolio changes was discussed in the recent post, No Más!!

The subsequent addition to the Shipping – Tanker names was also discussed in Can You Spell: C-O-N-T-A-N-G-O.

Performance and Review

The first quarter saw the portfolio fall -30.4%, significantly underperforming both the S&P 500 Total Return (-19.6%) and the MSCI World (Total Return, Net Dividends; -21.0%).

First Quarter Attribution

The first quarter can pretty easily be summed up as OM doing too little too late! 

Frustratingly, this was especially the case with the portfolio’s Emerging Markets exposure, which accounted for approximately half the losses.   OM knows better; the low-level of local institutional ownership means EM always sees a shoot first and ask questions later approach during crises.  This has the inevitable double whammy for US dollar investors of hurting both the stocks and the currency.  Given the longer-term nature of OM’s theses the delay in reducing the positions was exceptionally poor portfolio management.  

The limited position sizes help curtail the losses in the thematic positions in Brazil (-240bps), India (-150bps) and Vietnam (-180bps) though none are now positive contributors over the last year+.  The biggest loss came from the large dislocation position in Greece (-1,040 bps), which also gave up slightly more than all of last year's gains.  Ironically, the new Greek government acted much more quickly and decisively than its European peers to combat the Covid-19 crisis.   It is now receiving plaudits for its efforts, which have helped limit both cases and deaths but OM vastly over-weighted this competence in his decision-making.   Unfortunately, given tourism represents ~20% of the economy and small businesses are the major employer there will still be significant economic consequences.  However, Greece’s prompt actions should help restart its economy more quickly than others, and hopefully the government can continue to show similar competency in rebuilding the economy.

The other Dislocation positions in Shipping/Tankers (-467bps) and Uranium (-139bps) were detractors during the quarter.  We’ve discussed Shipping/Tankers enough, but similar dynamics resulting from a tightly supplied market are finally starting to play out in the Uranium space.  Both positions were added to in early April.

The remaining Thematic position in Tech: 4th Industrial Revolution (-14bps) was a minimal detractor, with the position in online Chinese retailer JD.com (JD) benefiting from the lock down in China.

The Idiosyncratic book saw the position in Texas Pacific Land Trust (TPL, -160bps) fall in sympathy with the decline in the oil price, which overwhelmed the news that the Trust’s internal Committee recommended it convert to a C-Corp structure.   Finally, the Funds exposure (-270bps) and Technical book (-370bps) largely fell back in line with global markets.

Portfolio (as at 03/31/20 - all delta and leverage adjusted, as appropriate)

Dislocations: 39.4%

26.9% - Shipping (STNG, DSSI, EURN, TNK and DHT)

8.9% - Greece (GREK, ALBKY, and EGFEY)

3.5% - Uranium (CCJ and NXE)

Thematic: 14.0%

5.4% - Tech: 4th Industrial Revolution (JD & WCLD)

3.2% - Vietnam (VNM)

2.7% - India (INDA)

2.7% - Brazil (EWZ)

0.0% - Blockchain (no positions)

Technical: 0.0%

0.0% - OEW Technical positions (DDM, SSO, and QLD)

Idiosyncratic: 16.1%

13.7% - Funds (ARTTX, CWS, GVAL, and CAPE)

2.3% - Equities (TPL)

Shorts/Hedges: 0.0%

Cash: 30.6%

Disclaimer:  Nothing above represents a recommendation in any way, shape or form so please don’t even think of trying to take it that way.  For added clarity, while Our Man is invested in all of the securities mentioned that’s a terrible reason for anyone else to do so.  Our Man 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 given your own circumstances/risk tolerance/etc.