2020: Third Quarter Update

Portfolio Update
- Uranium:  Our Man continued to materially increase the Uranium position, as the positive signs continued.

- Blockchain/Crypto:  Our Man added to the Bitcoin (GBTC) position near quarter-end.

Performance and Review
OM’s portfolio hasn’t yet been invited to the market fun, rising just +2.2% during the third quarter.  This pales in comparison to the S&P 500 Total Return (+8.9%) and the MSCI World (Total Return, Net Dividends; +7.9%).  For the year, this leaves the portfolio down -28.3% while the market indices have recovered their early year losses (S& P 500: +5.6%, MSCI World: +1.7%).

Third Quarter Attribution
 

The third quarter was surprisingly quiet for OM’s portfolio, with broad-based gains being partially offset by losses in Shipping/Tankers (-103bps) and the Texas Pacific Land Trust (TPL, -82bps) position in the Idiosyncratic book.   Both positions  indirectly impacted by oil, especially fears about second COVID waves and a slow recovery in oil demand.  In the case of tankers, the market expects exceptionally weak rates through 2021 with the companies receiving little credit for the extraordinary earnings of the last 12mos that have radically improved their balance sheets.

The two other positions that fit into the broad “supply is constrained” theme – Uranium (+55bps) and Blockchain/Crypto (+60bps) were good contributors.  The news flow on Uranium continues to be positive on the supply side, as well as the removal of some regulatory uncertainty that may encourage utility demand.  The Blockchain/Crypto book benefited as bitcoin continued to see increasing acceptance as a store of value, with Microstrategy, a publicly listed company, moving part of its cash holdings into bitcoin.  OM believes that this institutional acceptance is likely to continue, but that the role GBTC may play in consuming the supply of bitcoin (similar to GLD's impact on gold during the 2000s) is under-rated.   Given the commodity-bias (Uranium & Tankers) at the top of OM’s portfolio, the Blockchain/Crypto exposure is OM’s hedge in case we get a full on bubble in software/growth.  Bitcoin is digitization and "software taking over the world" taken towards its logical extreme.

The rest of the portfolio showed reasonable gains led by the exposure to the 4th Industrial Revolution, especially Software-as-a-Service (SaaS) stocks.  While SaaS is a great business model and technological progress has been pulled forward by COVID, the valuations are exceptionally high.  The median public SaaS company trades at 16.0x next-twelve month’s revenue estimates, a healthy jump from the already nosebleed 13.1x pre-COVID.  Caveat emptor; beware, they’re not ALL going to turn into the next FANG companies!

The thematic exposure to Vietnam (+38bps) and India (+49bps), both emerging markets countries with attractive demographics, finally started to participate in the market rally.  This broader participation also helped the Funds (+128bps), which recouped its losses for the year during the quarter.


Portfolio (as at 09/30/20 - all delta and leverage adjusted, as appropriate)
Dislocations: 41.5%
18.8% - Uranium (URNM, CCJ, NXE and URG)
17.8% - Shipping/Tankers (STNG, DSSI, EURN, TNK and DHT)
4.0% - Greece (GREK & ALBKY)

Thematic: 21.2%
7.1% - Tech: 4th Industrial Revolution (JD & WCLD)
5.8% - Blockchain/Crypto (GBTC)
4.2% - Vietnam (VNM)
3.6% - India (INDA)
0.5% - Brazil (EWZ)

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

Idiosyncratic: 18.8%
16.3% - Funds (ARTTX, CWS, GVAL, and CAPE)
2.5% - Equities (TPL)

Shorts/Hedges: 0.0%

Cash: 15.3%

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.