June 2012 Review

Portfolio Update
- June saw the second (much smaller) tranche of the redemption discussed in April, with Our Man again deciding to reduce the cash position slightly and concentrate the exposure into the existing portfolio.

Performance Review
The markets bobbed around without any clear and consistent trend for the vast majority of the month before rallying strongly in the final days, after the latest European summit seemed to suggest another plan to ‘fix’ things.  The month was a different one for the portfolio, which various elements moving in different directions as some idiosyncratic company-related events largely made up for the broad under-performance of the more macro-related elements.  The end result however was rather flat performance (+0.07% in June), which pretty much summed up the first-half of the year (-0.01% YTD)

Unsurprisingly, given the sharp rally in the market and the late-in-the-month positive sentiment towards Europe the Puts/Hedges (-56bps), and the Currencies (-32bps) books were the main negative contributors.  The China Thesis (-39bps) also hurt performance, with hopes of a soft landing in China and the potential for recovery in Europe (China’s largest export market) working against the book.

Against this, the equity-centric books were the positive driver’s of performance.  The Value Equities (+61bps) book was aided by the constructive market environment, with THRX benefiting from the positive sentiment in the biotech/healthcare space which saw a number of transactions, including GlaxoSmithKline’s completion of its acquisition of 10mn shares in THRX that was announced in April.  The Energy Efficiency book (+77bps) was the largest contributor to the portfolio.  The book was driven by the performance in XIDE, which announced reasonable numbers.  The company has a checkered history with constant Given the company’s terrible history of restructuring and constant charges the company rightly trades at a discount to peers; however, the hints that the current management are reaching the end of their restructuring after bringing the company out of bankruptcy could have a substantial impact on the firm’s Earnings, ability to capture some of the market (in micro-hybrids) that’s becoming available to them, and their rating.  We shall see, over the next couple of years, if it’s another false dawn in Exide’s emergence.

Elsewhere the Treasuries (-8bps), Bond Funds (+4bps) and NCAV (+1bp) books had a very limited impact on performance.

Portfolio (as at 6/30 - all delta and leverage adjusted, as appropriate)
18.9% - Bond/Absolute Return Funds (DLTNX and HSTRX)
6.5% - Value Idea Equities (THRX, and DRWI)
5.1% - Treasury Bonds (TLT)
2.8% - Energy Efficiency (AXPW, and XIDE)
0.5% - NCAV Equities
0.0% - Other Equities (none)

-1.9% - China-Related Thesis (60bps premium in EWZ Jan-13 puts)
-0.5% - Hedges/Put Options (19bps in IWM Jan-13 puts, 17bps in SPY Jan-13 puts and 12bps XLY Jan-13 puts)

-12.4% - Currencies (EUO – Short Euro)

59.0% - 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.