Portfolio Update
- Currencies: After their strong recent performance, OM trimmed
back his positions Short the Euro (EUO) and Short the Yen (YCS) by about 1/3
each. These trims were prior to the
ECB’s decision on QE (which was deliberate, as OM wanted to reduce some of the
event risk in case they did not impress the market with their plans) and also
prior to the Swiss National Bank abandoning their peg to the Euro (which OM,
like most folks, didn’t see coming).
- Absolute
Return: Our Man exited his position in
DLTNX, a Total Return Bond Fund; with the Fed now thinking about raising rates,
much of the easy money available since 2009 has been made in fixed income.
- Equity: OM added a position in Gulfort Energy (GPOR),
an Energy company. While OM isn’t
convinced that we’re going to see Oil prices rocket back to the $100 in the
near-term, he does think there are opportunities in some Energy names that have
done sensible things (re. production, costs, etc) and have been discarded along
with the broad sector.
- Precious Metals: For
the first time in an age, Our Man has taken a position in the Precious Metals
book. While OM remains skeptical on the
long-term price of Precious Metals, with the number of Central Banks around the
world either cutting interest rates or attempting some form of QE, OM does
think there’s the chance of a strong (likely counter-trend) rally in the
Precious Metals during 2015 (and perhaps even into 2016). He’s chosen to play this with a position in
the Gold Miners (GDX), which have been heavily beaten-up during Gold’s
difficulties.
- International: Finally, Our Man rounded out his basket of
Argentina names, with a position in AGRO.
Performance Review
January was a volatile month, both for the markets
(with the S&P ending up down 3.0%) and for Our Man’s portfolio which saw 13
days of moves greater than 70bps+ in one direction or the other, but ended the
month +0.48%.
The performance was driven by the strength of the US
Dollar, with the Currencies book (+132bps) and the China Thesis book (+75bps)
being strong contributors. The decision
by the ECB to start their version of a QE programme, helped continue the Euro’s
weakening trend which was a strong beneficiary for the Currencies book (EUO
position added 190bps). During the
month, it became widely-expected that the Royal Bank of Australia would join
those countries easing monetary policy (it cut rates at the start of February),
and this helped the Australian Dollar weaken during January (OM’s position in
CROC, S Australian Dollars, helped add 90bps to the China Thesis book).
The fall in the Equity markets was directly reflected
in the Technical Book (-70bps), though less so in the Equities book
(+31bps). The Equities book saw numerous
cross currents that eventually lead to that small positive performance, with
the Energy names (-18bps) and the position in THeravance (-73bps, after
concerns on the speed of the ramp of its products by GSK). Against these, there was a strong perofrmance
from Tata Motors (TTM +67bps) as the sales at Land Rover and Jaguar continue to
do well, and from the Internet names (+46bps) though this largely reflected
VIPS recovering its December decline.
The largest detractor was the International book
(-125bps), which was substantially all from the position in Greece (GREK) that
declined as it became clear (and then reality) that the opposition (and
anti-austerity) Syriza party were on course for victory in the election, which
has led to further discussion/debate/speculation about Greece’s place in the
Euro and the various ECB/IMF loans and promgrammes. . In
many ways the Argentina and Greece positions bear great similarity; they’re
sized about the same (4-5% of capital, each), are inherently volatile and moved
by sentiment/politics in the short-term (and thus in any given month are likely
to be noticable positve or negative contributors). They also both reflect a combination of (i)
extreme undervaluation (when looking at long-term measures, such as CAPE), (ii)
time arbitrage (things are not as dark as they seem today, and the further we
progress the clearer this will become…especially after point 3) and (iii) a
catalytic event. For Argentina, the
event is the election of a new President later this year and the changes that
are likely to follow thereafter, and for Greece the events were (i) the
original bailout back in 2010 and (ii) the recent election, which will more
substantially determine Greece’s debtloads, austerity, and position within the
Euro. As such, don’t expect Our Man to
be overly swayed by large short-term moves in either direction from these
positions – they’re sized such that the portfolio can withstand these moves,
with the hope of returning multiples on the employed capital on a 3-4year view.
Elsewhere there were small impacts from the
Absolute/Bond Funds (+5bps), Puts/Hedges (-3bps), Precious Metals (+4bps) and
Energy Efficiency (+1bp) books.
Portfolio (as at 1/31 - all delta and leverage adjusted, as
appropriate)
22.4% - Technical Book
(DDM, QLD and SSO)
20.1% - Equities (EOX,
GPOR, RDY, TBPH, THRX, TTM, TWTR & VIPS)
9.9% -
International/Country (GREK, GVAL, and Argentinian names)
3.6% - Precious Metals
(GDX)
0.1% - Energy Efficiency
(AXPW, and XIDE)
-17.8% - China-Related Thesis (CROC – Short Australian Dollar, partially offset
by CAF – Long Chinese A-Shares)
-45.0% - Currencies
(EUO – Short Euro, YCS – Short Japanese Yen)
17.7% - 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.