July 2012 Review

Portfolio Update
- There were no changes to the portfolio during the course of July.

Performance Review
July was a decent month for the portfolio, which rose 80bps putting the YTD performance back into the positive (+0.8%) though this pales in comparison to equity indices globally (S&P 500 TR: +11.0%, MSCI World +7.7%).

Continued concerns about the macro conditions in the US helped the Treasury Bond (+19bps) and Bond/Absolute Return (+15bps) buckets perform solidly.  This was compounded by the continued struggles of Mediterranean Europe, which saw the Currencies book (+34bps) add to performance as the Euro weakened.  This uncertainty was met with increased belief that monetary authorities across the world (especially Europe, US and China) were willing to engage in further QE (or fiscal stimulus in China’s case) and the resultant rally saw the aforementioned books give back much of their gains before month-end, and also hurt the China-related (-15bps) and Puts/Hedges (-9bps) positions.

The performance of the Equity-related books was quite mixed.  In the Value Equity book (+69bps), Dragonwave (DRWI) continued to negatively impact performance; while the company completed its business transforming acquisition of Nokia Siemens Network’s Microwave Trasportation business, the short-term prospects continue to reflect difficulties with the company issuing revenue guidance beneath analysts estimates for next quarter.  This negative performance was offset by another strong month from Theravance (THRX) – the company’s results were in-line with expectations, and the progress of their key drugs continues to be positive.   The Energy Efficiency book (-32bps) was a negative contributor, as analysts worried about the strength of XIDE’s earnings given the weakness in Europe and their sizeable business there.  The NCAV book (-2bps) is a solitary position at this time, and had limited impact on the portfolio.

Portfolio (as at 7/31 - all delta and leverage adjusted, as appropriate)
18.9% - Bond/Absolute Return Funds (DLTNX and HSTRX)
7.1% - Value Idea Equities (THRX, and DRWI)
5.2% - Treasury Bonds (TLT)
2.4% - Energy Efficiency (AXPW, and XIDE)
0.5% - NCAV Equities
0.0% - Other Equities (none)

-2.1% - China-Related Thesis (44bps premium in EWZ Jan-13 puts)
-0.4% - Hedges/Put Options (16bps in IWM Jan-13 puts, 12bps in SPY Jan-13 puts and 11bps XLY Jan-13 puts)

-12.9% - Currencies (EUO – Short Euro)

58.6% - 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.