Portfolio Update
- Technical: After growing sceptical of the rally
during December (but not flashing any major warning signs), the Technical model
quckly flashed a warning and a full sell signal during the first couple of
weeks of January. As a result, OM exited
the positions in mid-January when the S&P was in the mid-1900s.
- Equity: With the warning lights from the Technical model flashing, and the myriad of issues with China (and as a result EM) coming to the forefront, OM decided it would be a judicious time to exit some of his Equity positions that have a Chinese-bent. As such he completely exited TTM (which suffers doubly from any slowdown in auto sales in China and the US, where sales are already at a high rate) and JD.com (Chinese company, in Internet consumer sector). Our Man also sold ~1/3 of the VIPS position, another Chinese internet name, but one in which he has higher conviction than JD.com (in part because it generates a profit).
- International: As noted in the year-end review, with all the issues in Europe and Our Man’s lack of faith in European decision-making, he exited all of the Italy (EWI) and Spain (EWP) positions in mid-January. In addition, after the exceptional performance of the Argentinean names as President Macri first forced a run-off and then won it (and proved far more decisive and aggressive in dealing with the issues in his first 100days than was believed possible), OM took the opportunity to take profits in his Argentina position (by selling TGS).
- Currencies: With Europe following Japan into negative interest rates, and having witnessed the impact of the move in Japan on both the currency (stronger, not weaker) and banking system (stocks falling), OM reduced his Short Euro position by 1/3 during the second half of the first quarter.
- China Thesis: With Chinese New Year followed by data that looks to be improving (or at least, not getting worse) and the bounce in commodity prices, OM substantially reduced the Short AUD position (by 80%+). The position has been a great winner, but OM suspects there will be a much better time when he’s able to re-enter it (at much better prices).
Performance and Review
The first quarter saw the portfolio drop 4.95%, though after suffering a 7.0% loss in the first two weeks of January, the book was incrementally profitable in the remainder of the month and both February and March.
Unsurprisingly, the Equities book (-304bps) and the Technical book (-283bps) were the largest causes of the loss. As the Portfolio Update above notes, both books were heavily cut back during the month (they were over 50% NAV, and are now 10%) and in the Technical Book’s case the exposure is unlikely to return any time soon barring a significant change (this is as the Technical model is signalling a bear market, rather than just a notable correction). The International/Country book (-94bps) suffered during January (primarily from the European positions), though the Argentinean names have continued to perform well as President Macri exceeds expectations (settling with the holdouts, and accessing global capital markets for the first time in 15yrs).
Despite their reduced size, the currency-orientated book were negative contributors, Currencies (-48bps) and China Thesis (-2bps), during the quarter with all of the losses coming in March; clearly OM wasn’t surprised by the dollar’s weakness (hence why the positions were reduced) though the speed of the reversal was a surprise. That said, expect OM to rebuild the currency positions in the future, especially the Euro (prior to Brexit, Greece’s latest problems, etc). Finally, the Precious Metals (+235bps) book contributed to returns with Gold, Gold Miners and latterly Silver all contributing well and erasing most of last year’s loss (oh the cost of being too early!!). While OM’s yet to be convinced this is more than the start of a sharp reversal in a bear market, he’s holding onto the positions as (though it will likely be volatile) there’s likely much more to come.
Portfolio (as at 03/31 - all delta and leverage adjusted, as appropriate)
15.6% - International/Country (GVAL, and Argentinian names)
12.0% - Precious Metals (GDX, GLD and SLV)
10.0% - Equities (RDY & VIPS)
-1.8% - China-Related Thesis (CROC – Short Australian Dollar)
-9.9% - Currencies (EUO – Short Euro)
56.6% - 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.
- Equity: With the warning lights from the Technical model flashing, and the myriad of issues with China (and as a result EM) coming to the forefront, OM decided it would be a judicious time to exit some of his Equity positions that have a Chinese-bent. As such he completely exited TTM (which suffers doubly from any slowdown in auto sales in China and the US, where sales are already at a high rate) and JD.com (Chinese company, in Internet consumer sector). Our Man also sold ~1/3 of the VIPS position, another Chinese internet name, but one in which he has higher conviction than JD.com (in part because it generates a profit).
- International: As noted in the year-end review, with all the issues in Europe and Our Man’s lack of faith in European decision-making, he exited all of the Italy (EWI) and Spain (EWP) positions in mid-January. In addition, after the exceptional performance of the Argentinean names as President Macri first forced a run-off and then won it (and proved far more decisive and aggressive in dealing with the issues in his first 100days than was believed possible), OM took the opportunity to take profits in his Argentina position (by selling TGS).
- Currencies: With Europe following Japan into negative interest rates, and having witnessed the impact of the move in Japan on both the currency (stronger, not weaker) and banking system (stocks falling), OM reduced his Short Euro position by 1/3 during the second half of the first quarter.
- China Thesis: With Chinese New Year followed by data that looks to be improving (or at least, not getting worse) and the bounce in commodity prices, OM substantially reduced the Short AUD position (by 80%+). The position has been a great winner, but OM suspects there will be a much better time when he’s able to re-enter it (at much better prices).
Performance and Review
The first quarter saw the portfolio drop 4.95%, though after suffering a 7.0% loss in the first two weeks of January, the book was incrementally profitable in the remainder of the month and both February and March.
Unsurprisingly, the Equities book (-304bps) and the Technical book (-283bps) were the largest causes of the loss. As the Portfolio Update above notes, both books were heavily cut back during the month (they were over 50% NAV, and are now 10%) and in the Technical Book’s case the exposure is unlikely to return any time soon barring a significant change (this is as the Technical model is signalling a bear market, rather than just a notable correction). The International/Country book (-94bps) suffered during January (primarily from the European positions), though the Argentinean names have continued to perform well as President Macri exceeds expectations (settling with the holdouts, and accessing global capital markets for the first time in 15yrs).
Despite their reduced size, the currency-orientated book were negative contributors, Currencies (-48bps) and China Thesis (-2bps), during the quarter with all of the losses coming in March; clearly OM wasn’t surprised by the dollar’s weakness (hence why the positions were reduced) though the speed of the reversal was a surprise. That said, expect OM to rebuild the currency positions in the future, especially the Euro (prior to Brexit, Greece’s latest problems, etc). Finally, the Precious Metals (+235bps) book contributed to returns with Gold, Gold Miners and latterly Silver all contributing well and erasing most of last year’s loss (oh the cost of being too early!!). While OM’s yet to be convinced this is more than the start of a sharp reversal in a bear market, he’s holding onto the positions as (though it will likely be volatile) there’s likely much more to come.
Portfolio (as at 03/31 - all delta and leverage adjusted, as appropriate)
15.6% - International/Country (GVAL, and Argentinian names)
12.0% - Precious Metals (GDX, GLD and SLV)
10.0% - Equities (RDY & VIPS)
-1.8% - China-Related Thesis (CROC – Short Australian Dollar)
-9.9% - Currencies (EUO – Short Euro)
56.6% - 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.
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