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.