Portfolio Update
- India: OM added to the portfolio’s India exposure through bother larger caps (INDA) and smaller/mid caps (SMIN). OM also added a position in ICICI Bank (IBN).
- Biotech: While the overall market has been strong, the biotech market has been exceptionally weak. Our Man took the opportunity to increase his initial starter position through the sector ETFs (both IBB and XBI). [Editor’s Note: Yup, OM was too early to do this!]
- Tin: The tin thesis represents OM’s single highest conviction thesis entering 2022, but its size remains constrained by the paucity of ways to express it. However, OM continued to add to his position in Alphamin Resources (AFMJF). Alphamin’s Bisie Tin Project is undeniably the single best tin asset on the planet, with ever increasing signs that the deposit is somewhat larger than believed.
Performance and Review
While OM’s portfolio ended up broadly flat during the fourth quarter, this disguises the sharp swing in performance – by November 9th, OM’s portfolio was up just over 18% for the quarter (and 60%+ for 2022) before giving back all of this performance over the remainder of the quarter.
OM’s portfolio ended the quarter rising +0.1%, and trailed both the S&P 500 Total Return (+11.0%) and the MSCI World (Net, +8.1%) after losing money during December’s rally. This meant that OM’s portfolio ended 2021 up +38.1%, though this still outpaced the S&P 500 TR (+28.7%) and the MSCI World (Net, +24.1%).
Fourth Quarter Attribution
OM’s Shipping-Tanker positions (-219bps) were the largest detractor with fears over Omicron’s impact on demand hanging over the names. This wasn’t the only cause of weak performance as headline rates were already largely disappointing during the seasonally strong 4th quarter. However, there is a bifurcated market with modern vessels receiving vastly superior rates to more inefficient older vessels. These discrepancies and the strong steel price meant we finally saw an uptick in the scrapping of older vessels, which is an important factor in balancing the market.
The largest contributor to performance was OM’s exposure to Tin (+244bps); the metal was one of the best performing commodities in 2021, setting numerous record highs towards year-end. OM’s stocks couldn’t keep up with the metal price though Alphamin generated substantial profits, now has no net debt and continues to see positive drilling result. Elsewhere, little has changed with OM’s thesis during 2021 other than further evidence that demand remains strong and key producers are either running out of reserves (Myanmar, 17% of production but only a couple of years of reserves left) or are seeing shifts to more expensive types of mining (Indonesia, the largest tin producer).
While Uranium (-41bps) was not the biggest detractor during the quarter, it saw the largest intra-quarter swing having been up almost 800bps at one point. As mentioned last quarter, Sprott completed its transaction for the renamed Sprott Physical Uranium Trust (“SPUT”) and was an aggressive purchaser of Uranium in September and throughout the 4th Quarter. This saw the Uranium equities rally significantly during the first half of the quarter, before falling back through a mixture of getting ahead of themselves and concerns over the Omicron variant. Fundamentally, things remain positive with nuclear included in the initial draft of the EU Taxonomy, China indicating it plans to build another 150 nuclear plants over 15-years (i.e. more than the rest of world has in 35-years), and wide scale Western government support for Advanced SMR (small modular reactors). Though Uranium is OM’s largest position, unlike earlier in the year, it is sized such that OM can stomach the volatility in the space. OM’s Blockchain holdings (-15bps) also saw significant volatility over the course of the quarter, as both Bitcoin and Ethereum slumped after touching record highs.
OM’s exposure to the ‘new’ economy was a detractor during the 4th quarter with both the software positions in Tech-4th Industrial Revolution (-38bps) and the Biotech (-55bps) positions hurting. Software remains an attractive sector in the long-term, and its evangelists speak many truths but it just remains very expensive [Editor’s Note: Still true, despite the fall so far in January] and thus undersized in the portfolio. OM’s Energy exposure (-67bps) was a detractor during the quarter.
The exposure to Funds (+102bps) was positive, as they participated in the market’s rise. The idiosyncratic exposure (+73bps) was entirely driven by the position in JOE, which continues to successfully develop parcels of real estate in the Florida Panhandle. Our Man’s broad international exposure in Vietnam (+30bps), India (+2bps), Greece (-5bps) and Brazil (-2bps) was largelyy flat. Brazil, while the smallest position, is the one where OM is currently spending the most time! The last two-years have been a terrible time with the impacts of COVID, the Bolsonaro presidency, slowing economic growth, high inflation and interest rates rising (seven consecutive times from 2% to almost 10% during 2021!). However, this is what makes it an interesting potential dislocation. We know all of these things but Brazil remains rich in commodities, we are near the end of the rate rising cycle, have an election later in the year, and the equity market is cheap (~8x).
Portfolio (as at 12/31/21 - all delta and leverage adjusted, as appropriate)
