August 2012 Review

Portfolio Update
- As noted in the recent “After Half-Term Ponderings” it seems that we’re set for QE Everywhere.  With the portfolio positioned poorly for this, Our Man added a position in Gold (GLD) for a 6-12month ‘trade’.

Performance Review
Despite August proving a positive month for the markets, the portfolio fell by 64bps during the month once again leaving the portfolio around flat (+0.15% YTD) for the year.

The fund spent the entire month in the red with the losses being fairly broadly spread across the portfolio.  The Puts/Hedges (-21bps) and China Thesis (-11bps) books both suffered as markets across the globe rallied, with both now representing very limited exposure.  The Currencies book (-29bps) gave back most of July’s gains, with almost the entirety of the loss coming after ECB President Mario Draghi pledged to do everything to support the bond markets (especially those in Spain/Italy) and keep the Euro together.  The Treasuries book (-7bps) also gave back part of its recent gains.  Finally, despite the general rise in equities, the Value Equity book (-32bps) was also a negative contributor.  This was due to the fall in THRX, which saw some profit-taking following its 25%+ rally during July, and despite a positive contribution from DRWI.

The positive contributions were all relatively small.  The Absolute Return/Bond Funds (+13bps), NCAV (+5bps) and Energy Efficiency (+8bps) books both benefited from the rise in risk appetite and asset markets.  The addition of the GLD position, meant that the Precious Metals book (+10bps) proved to be well-timed with expectations for QE3 rising after Fed Chairman Ben Bernanke’s speech at Jackson Hole

Portfolio (as at 8/31 - all delta and leverage adjusted, as appropriate)
19.1% - Bond/Absolute Return Funds (DLTNX and HSTRX)
7.3% - Precious Metals (GLD)
6.8% - Value Idea Equities (THRX, and DRWI)
5.2% - Treasury Bonds (TLT)
2.5% - Energy Efficiency (AXPW, and XIDE)
0.6% - NCAV Equities
0.0% - Other Equities (none)

-1.0% - China-Related Thesis (34bps premium in EWZ Jan-13 puts)
-0.1% - Hedges/Put Options (8bps in IWM Jan-13 puts, 7bps in SPY Jan-13 puts and 4bps XLY Jan-13 puts)

-12.4% - Currencies (EUO – Short Euro)

51.8% - Cash

Disclaimer:  For added clarity, Our Man is invested in all of the securities mentioned (TLT, DLTNX, HSTRX, GLD, 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.