June Review

Portfolio Update 

Our Man is back from his vacation, so a brief but late update on June, which saw changes to the portfolio. 

Performance Review 

June was a thoroughly disappointing month, with the portfolio falling into negative territory on the 2^nd and never managing to clamber back into the black.  For the vast majority of the month, until the final few days, the book was down in the 25-75bps range but the book suffered as the market rallied strongly in the final days and ended up -2.1% (-1.5% YTD).   However, this sharp negative performance late in the month should not disguise the portfolio’s weakness, with pretty much every book contributing to the poor performance.

The Treasury Bond book (-63bps) and the Bond Funds (-16bps) were the main contributors to the end of the month swoon, giving up their gains, as the fears over the ongoing problems in Greece after the country’s parliament approved another austerity program.

The Value Equities book (-87bps), as both THRX and DRWI fell heavily during the month and was the largest negative contributor.  DRWI suffered from continued uncertainty over its short-term outlook after management reduced their guidance for their fiscal Q1 (May-end).  While this hurt the stock, the long-termstory is largely unchanged and the position is well-sized to cope with the interim volatility.  Theravance (THRX) had a larger impact on the portfolio, despite announcing reasonable Phase II trials together with Glaxo; the company is still developmental and has limited current revenues and thus suffered as market risk aversion rose and investors moved towards less risky companies.   The NCAV equities (-22bps), which consists of 9 micro-cap companies, also suffered from the increased risk aversion.  The Other Equities (-5bps), Energy Efficiency (-5bps) and China (-2bps) all hampered performance, with the Puts/Hedges book (+2bps) offering the only (and minimal) respite.

The Currencies book (-7bps) was up for most of the month as concerns surrounding Greece’s fiscal problems affected the Euro, but ending up costing money after the Euro rallied once the Greek Parliament approved further austerity measures.

Portfolio (as at 5/31 - all delta and leverage adjusted, as appropriate)
36.0% - Treasury Bonds (Aug-29 Bond & TLT, and 60bps premium in TBT Jan-13 puts)
22.0% - Bond Funds (VBIIX, DLTNX and HSTRX)
5.5% - Value Idea Equities (THRX, and DRWI)
3.0% - NCAV Equities
2.6% - Other Equities (NWS, CMTL and SOAP)

0.4% - Energy Efficiency (AXPW)

-0.1% - China-Related Thesis (7bps premium in FCX put)
-1.3% - Hedges/Put Options (13bps premium in S&P Dec-11 puts, 16bps in IWM Jan-12 puts, and 33bps SLV Jan-12 puts)

-6.7% - Currencies (EUO – Short Euro)

27.7% - Cash