August Review

Performance Review
August proved a successful month, with the portfolio returning +3.36% (putting the YTD at +7.9%) after rebounding in the final couple of days of the month to recoup almost the entirety of the Friday 27th’s loss (at 135bips, this was the portfolio’s single worst day since inception).  After last month, it was good to see the portfolio behave far more in line with expectations during August. 

The Treasury positions, which I’ve expected to be the driver of returns until the equity markets are noticeably lower (or higher) was dominant contributor (+331bps), with the Bond Funds also making a healthy contribution (+37bps).

The Equity positions were not as successful, and combined to be a small detractor from performance.  The Value Equity book (-68bps) almost entirely due to the position in THRX, which as a developmental drug company particularly suffered from the risk aversion during August to trade back down to the bottom of its recent range.  The NCAV book (-26bps), which is populated with micro-cap names, also suffered heavily from the increased risk aversion.  The Other Equity Book (-13bps) was a small negative contributor.  Against these negative contributions from the Equity positions, the Hedges/Put Options (+77bps) managed to offset a decent proportion of these losses.  The Short China thesis (-1bp) has fallen to such a small part of the portfolio, that it had no meaningful impact on returns.  While I believe the thesis (Part A, Part B, Part C) holds the timing has so far been far too early, and the question is whether and when to add additional positions (with longer duration) to increase the exposure to the theme.

Portfolio
45.2% - Long Treasury Bonds (21.97% TLT and 23.23% in the Aug-29 Bond)
14.4% - Long Bond Funds (6.6% HSTRX, and 7.8% VBIIX)
4.3% - Value Idea Equities (2.6% THRX, and 1.7% DRWI)
2.9% - NCAV Equities
2.4% - Other Equities (1.4% NWS, 1.0% CMTL, and 0.0% SOAP)

-0.1% (delta-adjusted) - China-Related Thesis (5bps premium in FCX put, <1bps premium in EWA put)
-10.6% (delta-adjusted) - Hedges/Put Options (82bps premium in S&P 2010 puts, 120bps premium in S&P 2011 puts and 56bps premium in a GS put)

27.9% - Cash

And now for something completely different; Mrs. OM has kinds informed me that the link to the Magic of Procrastination, in yesterday’s suggestion of things to read, didn’t work.  That’s been amended now, and here it is for those wanting to click straight through.