April 2014 Review

Portfolio Update

For more details on the changes to the portfolio, during April, please read the previous portfolio update.

- International Book: Our Man added the Cambria Global Value ETF (GVAL) which seeks to invest in regions with low CAPEs.

- Equity Book:  Trying to take advantage of the recent pull-back in Internet-related names, Our Man added PNQI (Powershares Internet Portfolio), TWTR, VIPS, P and QIWI.

Performance Review
April saw the most volatile month in the portfolio’s history, which largely reflected the increased exposure to markets.  The portfolio ended the month down -2.19%, putting the YTD at –2.7%.

The losses were broadly spread across the portfolio, with the main drivers being the International book (-32bps), the Currencies book (-42bps) and especially the Equity book (-137bps).   The losses in the Equity book were driven by the exposure to THRX and the Internet stocks (listed above).  Both were impacted by a continuation of March’s move away from growth-orientated or higher risk names.  THRX, a biotech stock, suffered from this though the company continues to move to split itself into 2 (a royalty-driven company from its existing therapies, and a biotech firm based on its product pipeline) which will go ahead during May, and will likely see the 2 ‘new’ stocks move very differently.  The old adage about catching knives costing fingers rang true in April, with the Internet stocks hurting the portfolio, with 4 of the 5 posting negative returns during the month (though all 5 were profitable until the final week of the month).

The International book’s losses came entirely from its position in Greece (GREK), its largest exposure, with small positive contributions from exposure to Spain (EWP) and Italy (EWI) failing to significantly offset this loss.  There’s been no change to the book, though both Spain and Italy are a little closer to being reduced in size (given the nature of their moves over the last 12-18mos) than Greece.  The Currencies book suffered as the Dollar’s meandering continued, with the positions Short Yen (YCS) and Short Euro (EUO) both hurting the fund.  The Yen’s move was largely in the broad trading range that it’s been bouncing around within.  While the Euro strengthened during the month it also exhibited signs of forming a top, something that would be more likely if Draghi’s promise to “do whatever it takes” (i.e. some QE-equivalent) proved to be more than empty words.

The rest of the books were largely flat on the month, with limited contributions.  The Absolute/Bonds Funds (+11bps) benefited from the strength in Treasuries, the NCAV book (-5bps) saw its sole position fall slightly before being closed out, and the China Thesis (-3bps) and Energy Efficiency (-4bps) books both posted small losses.  The Technical Book (+5bps) benefited from the rising markets, though the weakness of the NASDAQ prevented it from keeping up with the markets, and the Puts/Hedges books (-13bps) suffered as Brazil rallied strongly.

Portfolio (as at 4/30 - all delta and leverage adjusted, as appropriate) 

25.4% - Equities (THRX, PNQI, TTM, RDY, QIWI, VIPS, TWTR, P & DRWI) 

21.7% - International/Country (GREK, EWP, EWI & GVAL)

20.6% - Technical (DDM, SSO and QLD)

5.9% - Bond/Absolute Return Funds (DLTNX and HSTRX)
0.2% - Energy Efficiency (AXPW, and XIDE)

-3.1% - Hedges/Put Options (premium of 51bps in EWZ Jan-15 puts, and 19bps in EWJ Jan-15 puts)

1.4% - China-Related Thesis (CROC – Short Australian Dollar, more than offset by CAF – Long Chinese A-Shares) 

-51.0% - Currencies (EUO – Short Euro, YCS – Short Japanese Yen)

7.4% - Cash 

Disclaimer:  For added clarity, Our Man is invested in all of the securities mentioned.  He also holds some cash and a few other securities (of negligible value).  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.