Portfolio Update: Apr/May 2025 – The Time is Now!

OM used the ‘Liberation Day’ volatility in the market to concentrate the portfolio into his highest conviction ideas and reduce/exit others during mid-April.   The most notable exits were the positions in Brazil, Greece and TPL (Equities); all are interesting but lower conviction, and the market volatility offered attractive entry points elsewhere.  OM will spare you the market and political commentary and instead give you a sense of the core positions in the portfolio.   

OM has increased his allocation to Uranium, now comprising 22.6% of the portfolio as of May 22nd. He has also streamlined the position, consolidating it into two ETFs that represent both major and junior uranium miners.  In a fast-changing and often complex world, Uranium stands out as an anomaly. It is remarkably straightforward - its only use is as fuel for nuclear power plants - and everything about its market operates at a slow, deliberate pace. The core investment thesis has remained consistent for years: the lifespan of existing nuclear plants is being extended, new ones are gradually being built, and demand continues to rise. Meanwhile, mining uranium remains challenging and won’t scale meaningfully without higher incentive prices.  The uranium market moves slowly: long-term contracts dominate, new plants take years to construct and therefore don’t immediately impact demand, and new mines require lengthy permitting and development timelines. For long-term investors, this creates a market where supply and demand are easier to track, and where dislocations - like the dip in sentiment seen recently due to a falling spot price - can offer compelling entry points.

OM reduced his exposure to UK and European Financials, which now represent 12.9% of the portfolio, after a strong performance that saw many of these stocks double over the past 18 months. The investment thesis, first laid out in Q4 2023, remains largely intact.  As UK banks have addressed legacy issues - cleaning up their balance sheets and strengthening capital ratios - and benefited from a more favorable post-COVID environment (stable economies and higher interest rates), their underlying earnings power is beginning to emerge. This has prompted a market reassessment: stocks that were once priced as dire investments - such as Barclays, which traded at just 0.3x Tangible Book Value and 4.0x forward earnings - are now viewed as merely undervalued, with valuations improving to 0.6x TBV and 7.0x expected earnings.  OM continues to believe these banks will deliver further earnings growth and return substantial capital to shareholders through dividends and buybacks. However, with much of the re-rating already behind us, future gains are expected to be more measured.

OM maintained his ~12.5% position in Argentina, expressed through holdings in the country’s banks. As noted in the previous quarterly update, the scale, ambition, and early success of President Milei’s reform agenda have been remarkable, leading to a significant repricing of Argentine assets.  Despite the positions appreciating 2-3x over the past year, OM has chosen not to reduce exposure.  With many of the reforms now enacted into law, OM believes these investments are lower risk than when initially established. Looking ahead, OM expects the reform momentum to continue - particularly if Milei’s party performs well in the upcoming mid-term elections - which could provide further upside.

The final two core positions have been part of the portfolio for some time but were meaningfully increased during April. Each will be covered in detail in upcoming write-ups but below is a brief summary of the current investment thesis for both.

OM increased exposure to the U.S. Reindustrialization theme, which now accounts for 11.5% of the portfolio. While those in urban centers - particularly in the Northeast - may not see it firsthand or find it plausible, an industrial resurgence is already underway across the U.S.  Although President Trump is likely to take credit for this trend, the movement predates his current efforts. The shift began in the wake of COVID-19 and has since gained momentum through substantial legislative support under President Biden, including the CHIPS Act, the Inflation Reduction Act (IRA), and the Infrastructure Investment and Jobs Act (IIJA). While reshoring had been under consideration before the pandemic, COVID served as a stark reminder of supply chain vulnerabilities.  The advances in automation that have reduced the impact of labor costs have helped to make domestic manufacturing more financially viable.

OM significantly increased the position in California Carbon Allowances (“CCA”), which now represents 9.4% of the portfolio, following an Executive Order (“EO”) signed by President Trump in April that questioned the legality of California’s Cap-and-Trade program.  This EO marked the latest in a series of political and regulatory headwinds that had introduced uncertainty and pushed CCA prices down to their mandated floor. Despite the headline risk, the likelihood of a successful legal challenge appears low and, importantly, would take years to play out. In response, California’s political leadership has moved decisively, unveiling plans to extend the Cap-and-Trade program through 2045 - an action that both reaffirms long-term policy support and enhances the investment case.


Portfolio (as at 05/22/25 - all delta and leverage adjusted, as appropriate)
Dislocations: 53.4%
22.6% - Uranium (URNM & URNJ)
12.9% - European/UK Financials (BCS, LYG, NWG)
12.5% - Argentina (BMA, GGAL, SUPV)
5.4% - China (KWEB, FXI and JD)

Thematic: 43.8%
11.5% - US Reindustrialization (AIRR)
9.4% - Carbon Credit Allowances (KCCA)
7.3% - Shipping/Tankers (STNG, INSW, TNK, DHT and FRO)
5.0% - India (IBN, INDA and SMIN)
5.4% - Tin (AFMJF, MLXEF and SBWFF)
4.2% - Blockchain/Crypto (IBIT, ETHE/ETH and OSTK)
1.1% - Commodities/Mining (LUNMF)

Idiosyncratic: 2.4%
2.4% - Equities (JOE)

Shorts/Hedges: 0.0%

Cash: 0.4%

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.  

2025: First Quarter Review

Portfolio Update
There were no changes to the portfolio during Q1.
However, OM made a number during April so expect an update on them (soon).

Performance and Review
Our Man’s portfolio started 2025 slowly, falling by -6.3% during the first quarter, underperforming the MSCI World (-2.7%) and the S&P 500 TR (-4.3%).


First Quarter Attribution

Investors often look for "inefficient" markets where prices don’t reflect an asset’s true value, offering a chance to profit. However, these same inefficiencies - or a lack of capital to correct them - can cause prices to stray much further from fair value, and for much longer, than expected. OM has learned, often through mistakes, that it’s wise to keep positions undersized in such markets. Smaller positions allow for patience: staying in winning trades longer and avoiding the need to sell too early in losing ones and possibly even adding to them.

OM’s performance was driven largely by losses across 4 investments - Argentina (-205bps), Uranium (-439bps) Tin (-241bps), and Blockchain/Bitcoin (-103bps) - that clearly display traits of being inefficient markets.   The three primary drivers are discussed below:

In Argentina, President Milei has rightly received accolades for the speed, size and scope of his reforms.  OM’s Argentinean Bank equities have been significant beneficiaries, generating over 1,000bps of contribution in 2024.  Unsurprisingly, with negotiations over a deal with the IMF dragging on and those same equities using their increased valuation to raise capital, the positions saw healthy profit taking in Q1.  

We’ve talked about how Uranium is an inefficient market. One key reason is that most uranium is bought through complex private long-term contracts while the spot market (unlike other commodities) is small and heavily influenced by sentiment. Despite this, investors tend to focus on the spot price, which is much more volatile. For example, spot Uranium dropped from over $100 in January 2024 to $64 by March 2025, while the long-term price actually rose from $72 to $80. Uranium miners tend to act like a leveraged version of the spot price; URNM, the Uranium Miners ETF, fell from over $60 in early 2024 to under $30 by March 2025. While spot prices have swung wildly the underlying value, which is reflected more in the long-term price, has continued to grow steadily. This is because we're approaching a supply-demand crunch, and current prices aren’t high enough to encourage new production. OM sees this shift - from over-excitement to under appreciation - as a potential opportunity.

Tin took a major hit this quarter due to rising conflict in the Democratic Republic of Congo (DRC). In Q1, the M23 rebel group - reportedly backed by Rwanda - captured significant territory. Alphamin Resources, which operates the world’s most important tin mine in the DRC, chose to suspend operations and evacuate staff as a precaution, even though the mine is some distance/hard to access from the fighting. This caused the stock to drop sharply. While the actual risk may be lower than the market fears - “the map is not the territory” - it was a well-known risk in investing in Alphamin, and limited OM’s position size.  Some of the losses in Alphamin were offset by strong gains in Metals-X. Late in the quarter, the DRC proposed a minerals-for-security deal with the US, which has led to peace talks between the DRC, M23, and Rwanda.

These losses were partially offset by strong performance in China (+90bps), which rallied on hopes of government support and stimulus coupled with low valuations, and UK/European Financials (+270bps).  Large UK banks like Barclays aren’t seen as undercovered or inefficient investments. However, the years of post-financial crisis challenges - cleaning up balance sheets, low interest rates, weak economic and political sentiment, and low economic growth - have led the market to expect little change, even as conditions start to improve. For example, even after Barclays’ stock more than doubled in the last 18 months, it still trades at just 0.6x its Tangible Book Value (TBV). While the lofty pre-GFCs valuations of over 3x TBV are unlikely to return, OM believes there's still upside as earnings improve and the market gradually recognizes that the future looks better than the post-GFC past.

The rest of the portfolio was a wash; Idiosyncratic Equity (+61bps), Brazil (+48bps), Greece (+43bps) and Commodities (+1bp) contributed positively.  Their performance was offset by Reindustrialization of the US (-51bps), Biotech (-30bps), Carbon (-24bps), India (-24bps), and Shipping/Tankers (-22bps).

 

Portfolio (as at 03/31/25 - all delta and leverage adjusted, as appropriate)
Dislocations: 55.5%
16.8% - Uranium (URNM, URNJ, NXE, and SMR)
16.7% - European/UK Financials (BCS, LYG, NWG)
11.8% - Argentina (BMA, GGAL, SUPV)
6.3% - China (KWEB, FXI and JD)
4.0% - Brazil (EWZ)

Thematic: 32.3%
7.4% - Shipping/Tankers (STNG, INSW, TNK, DHT and FRO)
5.3% - India (IBN, INDA and SMIN)
4.7% - Biotech: 4th Industrial Revolution (IBB & XBI)
4.3% - US Reindustrialization (AIRR)
4.2% - Tin (AFMJF, MLXEF and SBWFF)
3.5% - Blockchain/Crypto (IBIT, ETHE/ETH and OSTK)
1.4% - Carbon Credit Allowances (KCCA)
1.2% - Greece (ALBKY)
0.3% - Commodities/Mining (LUNMF)

Idiosyncratic: 6.1%
6.1% - Equities (TPL & JOE)

Shorts/Hedges: 0.0%

Cash: 6.1%

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.