December Review

Performance Review
The portfolio’s behaviour and performance in December tended to be broadly reminiscent of recent months, especially October.  The result, a fall of 180bips in December left the 2010 performance at a disappointing +5.04%.

The theme of recent months, weak Treasury bond performance as hopes for economic growth increased, continued throughout December.  The Long Treasury Bonds (-166bps) and Long Bond Funds (-26bps) contributed substantially all of the portfolio’s losses during December.  While their combined sizable negative contribution over the last 4 months of the year hampered the portfolio, it should not be forgotten that they were the largest contributors to performance (c500bps combined) throughout the year.

With December proving to be another strong month for equities, it is little surprise that the main positive contribution came from the various Equity buckets.  Value Idea Equities (+28bps), NCAV Equities (+35bps) and Other Equities (+2bps) all largely moved with the markets.  Against this, the Hedges/Put Options bucket (-34bps) suffered from both the rise of the equity markets and the continued fall in volatility.  For the year, the NCAV bucket (+45bps) contributed well and largely outperformed the market from its inception during the latter half of the first quarter.  The other main equity buckets (Value Idea Equities, Other Equities and Hedge/Put Options) were largely a wash during the year, with the negative performance of the Hedges/Put Options cancelling out positive performance from the other buckets.  I was early in exploiting my China thesis and that bucket (-35-40bps) was a negative contributor.  The position in Gold, which was sold far too early, also proved to be a small negative contributor.

Finally, the recently introduced Currencies bucket (-19bps) gave back part of its gains during the month as the Euro strengthened following approval of a bailout package for Ireland. 

Portfolio
41.3% - Long Treasury Bonds (TLT and the Aug-29 Bond)
14.6% - Long Bond Funds (HSTRX, and VBIIX)
8.1% - Value Idea Equities (THRX, and DRWI)
4.6% - NCAV Equities
3.1% - Other Equities (NWS, CMTL and SOAP)

-0.0% (delta-adjusted) - China-Related Thesis (<1bp premium in FCX put)
-1.3% (delta-adjusted) - Hedges/Put Options (43bps premium in S&P Dec-11 puts and 1bps premium in a GS Jan-11 put)

6.0% (leverage-adjusted) – Currencies (EUO)

25.0% - Cash