Portfolio Update
All of the below will
be covered in an upcoming larger update on the portfolio and outlook.
- Precous Metals: Our
Man added positions in Gold (GLD) and Silver (SLV) during May/June, believing
that both are poised to bounce strongly in the near future.
-
International/Country – In late June, as the fears of a Grexit reached their
peak Our Man added to his positions in Italy (EWI) and Spain (EWP) believing
that much of the risk had been priced into these names. OM additionally
added slightly to the Argentinean group of names, as these had suffered from
the global risk aversion coupled with the market's (over)reaction to some of
the political news out of Argentina.
- Equity: OM fully
exited his Twitter (TWTR) position, something he should probably have done much
sooner after the company lost its way as little in H2-2014. OM also
reduced the position in Tata Motors (TTM).
Performance Review
May (-1.1%) and
especially June (-5.3%) proved to be exceptionally difficult months for the
portfolio as very little worked, leaving the YTD performance around flat
(-0.2%).
The Equities book
(-229bps) saw its losses driven by the position in Tata Motors and Vipshop
Holdings, which each cost over 100bps. While the long-term outlook for
Tata Motors is strong, it suffered some temporary setbacks including a rights issue
(at a 11-14% discount), front-loading commission costs in its new Chinese JV
with Cherry, discouting on the Land Rover Freelander and Discovery (to help
make way for new models) and the costs of the Jaguar XE hitting during Q2 prior
to the sales. Vipshop has suffered since its peak in April (though it
remains well into positive territory) after disappointing on earnings and
getting targeted by some short-sellers before being caught up in the
spectacular tumble in Chinese shares late in the quarter. OM is more
sanguine on the position - while they disappointed on the quarter, it was
largely as a result of prudent long-term decisions that have short-term costs
(i.e. not to discount and chase low quality revenues/business) and the recent
downdraft represents an opportunity to add to an Internet commerce company that
is both profitable and growing! (SPOILER ALERT -- yes, this means OM
added to it in July).
The International book
cost just over 300bps. The largest culprit was the direct exposure to Greece,
which cost about 1/3 of the total, and given the headlines this shouldn't come
as a shock. Greece is exceptionally cheap on just about any historical
measure, but the economy is pretty much exceptionally screwed up by just about
any historical comparison or precedent (think US depression of the 30s, as a
fair comparison). OM's bet is that while it will be exceptionally
volatile, Greece's economy will go from abysmal to really bad, before it's
companies (at least those in the index/ETF) go out of business and that the
upside is commensurate to the risk of being wrong (i.e. if OM is right, the
returns has to be multiples). The positions in Spain and Italy also
suffered (costing ~60bps) from the Greece fallout. Finally, the
Argentinean names cost ~100bps, after Scioli named Carlos Zannini (an ally of
exiting President Kirchner) as his VP candidate and subsequently led in a
number of polls, leading to investors (especially foreign) holding back.
OM understands this but suspects as primary season ends, Scioli will become
less feared as he sets out his plans for the general election and investors
look at his track record as Governor of BA Province.
The Precious Metals
book cost ~100bps, pretty evenly split between the gold miners and the metals
themselves; currently, OM believes he's early rather than wrong something
that's solidified by a couple of recent surveys that suggest sentiment on the
sector is at multi-decade lows! Elsewhere, there was much ado about
nothing the Technical book cost 27bps as the major US indices bounced around,
while the Currencies book (+17bps) and the China Thesis (+12bps) both profited
as the dollar strengthened.
Portfolio (as at 6/30 - all delta and leverage adjusted, as
appropriate)
33.9% -
International/Country (EWI/EWP/GREK in Europe, GVAL, and Argentinian names)
33.2% - Technical Book
(DDM, QLD and SSO)
16.5% - Equities (RDY,
TTM, TWTR & VIPS)
10.3% - Precious
Metals (GDX, GLD and SLV)
0.0% - Energy Efficiency
(AXPW, and XIDE)
-6.1% - China-Related Thesis (CROC – Short Australian Dollar)
-6.1% - China-Related Thesis (CROC – Short Australian Dollar)
-17.2% - Currencies
(EUO – Short Euro, YCS – Short Japanese Yen)
11.1% - 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.
