Portfolio Update
There were only a couple of changes to the portfolio this month, which slightly reduced the bearish tilt of Our Man’s portfolio.
- Treasury Bonds: The TLT position was halved as month-end approached after 20-30yrs Treasuries tightened back towards their low yields on fears around Europe and the possibility of QE3 in the US.
- Energy Efficiency: The XIDE position was added to near month-end after the company’s stock had started to recover following a sharp fall earlier in the month.
Performance Review
Unsurprisingly, given the portfolio’s large cash hoard, the portfolio did not show much volatility throughout November and ended the month up +0.4% (+8.1% YTD). Unlike recent months, which have been characterized by sharp movements in stocks and bonds, November was a far tamer month and this was reflected in the performance across the portfolio’s buckets.
The main impact to performance came from the NCAV (+20bps), Value Equities (+37) and Energy Efficiency books (-74bps). The NCAV book benefited from a takeover bid for one of the holdings, which will likely be exited in December (assuming no counter-bid is forthcoming). In the Value Equities book, the DRWI position was solid contributor, after the company came to an attractive agreement to buy a business segment from Nokia-Siemens that will have a substantial impact on DRWI’s revenues. However, while Our Man may have been patient waiting for XIDE, in the Energy Efficiency book, to come back to an attractive entry price, he would have been better off waiting a month. The company announced disappointing numbers in November, and was particularly hurt as it also revealed that one of its recycling plants in Portugal had intentionally misstated inventory & production numbers. While the company’s investigation suggests that only this one planted was affected, the stock lost over 1/3 of its value within a couple of days. Our Man added to the position towards the end of the month, as the selling seemed to subside, bringing it up to c1.6%.
Elsewhere, the Treasuries (+17bps) and Bond Funds (+15bps) benefited from a mild tightening in yields and reduced stress in the credit markets, while the uncertainty in Europe and resulting weakness in the Euro helped the Currencies book (+24bps). The China-related thesis (+4bps) benefited from continued concern about weakness in China, while the Other Equities (+1bp) book benefited from a dividend. The Puts/Hedges book (-8bps) suffered as the Dec-11 options burnt through their premium and are now largely worthless.
Portfolio (as at 11/30 - all delta and leverage adjusted, as appropriate)
14.7% - Bond Funds (DLTNX and HSTRX)
5.7% - Value Idea Equities (THRX, and DRWI)
4.8% - Treasury Bonds (TLT)
2.1% - NCAV Equities
1.8% - Energy Efficiency (AXPW, and XIDE)
0.0% - Other Equities (none)
-1.6% - China-Related Thesis (6bps premium in FCX Jan-12 put, and 45bps premium in EWZ Jan-13 puts)
-4.1% - Hedges/Put Options (1bps premium in S&P Dec-11 puts, 86bps in IWM Jan-13 puts, and 18bps SLV Jan-12 puts)
-8.9% - Currencies (EUO – Short Euro)
64.7% - Cash
Disclaimer: For added clarity, Our Man is invested in all of the securities mentioned (TLT, DLTNX, HSTRX, THRX, DRWI, AXPW, XIDE, FCX puts, EWZ puts, SPY puts, IWM puts, SLV puts, and EUO). He also holds some cash. 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.