April 2012 Review

Portfolio Update 

April saw some changes to the portfolio:

- Portfolio Redemption:  April is tax season in the US (and home improvement season in Mrs OM's mind!) and with this in mind Our Man and Mrs. OM decided earlier in the year to reduce their allocation to the portfolio at the end of Q1.  Given the large amount of cash in the portfolio and Our Man’s conviction in his names/theses, rather than selling positions to match the outflow, Our Man has reduced his cash position.  This has the impact of increasing the exposure to existing positions by c10%.

- NCAV Book changes:  As mentioned in the most recent NCAV post a number of positions within the NCAV bucket reached their sell-by date (see here for sell rules).  These positions were sold during April, leaving the NCAV portfolio with a solitary position.

Performance Review

April proved to be the portfolio’s first profitable month (+64bps) of the year though the portfolio is still negative for the year (-1.2% YTD).  While April saw the return of some uncertainty to the markets, which fell slightly over the course of the month, the portfolio’s profits were surprisingly broadly spread.

A number of books posted marginal gains/losses, which largely cancelled each other out.  The NCAV book (-4bps) was down for the month, though this largely represented the costs (mainly brokerage commissions) of exiting the majority of the portfolio.  The Currencies book (+7bps) benefited from the uncertainty in Europe and the China book (+2bps) from the mixed signals on Chinese growth.  The Puts/Hedges book (-5bps) was a mild detractor despite the small fall in equity markets

The Treasury Book (+21bps) and the Bond/Absolute Return Funds (+19bps) were both aided by the strengthening of US Treasuries over the course of the month, as uncertainty (especially over Europe) increased.  This uncertainty negatively impacted the Energy Efficiency book (-15bps) to a relatively large degree, given the speculative nature of one of the names (AXPW) and the mediocre recent history of another (XIDE).

The Value Equity book (+40bps), which has largely been disappointing to date, bucked the trend and had a strong month despite the small fall in the equity markets.  The performance was driven by the position in THRX, which rose after announcing that GlaxoSmithKline, its joint venture partner, was further increasing its stake in the business at a price above the then market value. 

Portfolio (as at 3/31 - all delta and leverage adjusted, as appropriate)

17.7% - Bond/Absolute Return Funds (DLTNX and HSTRX)

6.1% - Value Idea Equities (THRX, and DRWI)

4.5% - Treasury Bonds (TLT)

2.3% - Energy Efficiency (AXPW, and XIDE)

0.4% - NCAV Equities

0.0% - Other Equities (none)

-1.5% - China-Related Thesis (46bps premium in EWZ Jan-13 puts)

-2.4% - Hedges/Put Options (24bps in IWM Jan-13 puts, 20bps in SPY Jan-13 puts and 13bps XLY Jan-13 puts)

-10.7% - Currencies (EUO – Short Euro)

62.5% - Cash

Disclaimer:  For added clarity, Our Man is invested in all of the securities mentioned (TLT, DLTNX, HSTRX, THRX, DRWI, AXPW, XIDE, , EWZ puts, IWM puts, SPY puts, XLY 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.