Portfolio
Update
- Precious
Metals: As mentioned in the recent post,
Our Man exited all of his positions in precious metals (GLD, GDX, SLV) very
early in the 3rd quarter. The
positions were the largest contributor to performance in 2016, but Our Man is unconvinced
that the rally is the start of a new bull market (especially given Our Man’s
view on the dollar strengthening).
- Technical
book: Our Man’s technical indicators
believe there’s a good probability (i.e. 50%+) that the rally from Feb-16 lows
is the start of a significant up-leg in the markets (rather than a sharp bear
market rally) and as such it recommended re-entering the positions (DDM, QLD
and SSO). Our Man duly did so, almost at
the start of Q3.
- Currencies: Our Man entered a small/medium
size position Short Japanese Yen (vs Long US Dollar, YCS) early in the third
quarter. Following a strong rally in the
Yen (to the 100 level vs. the USD), and the continued commitment of the Bank of
Japan to easing monetary policy, Our Man felt comfortable
re-entering this position.
Performance and Review
The portfolio performed pretty well during the third quarter, adding 348bps
which puts the year-to-date performance at 2.81%.
The primary driver of
performance was the International/Country book, which added 185bps. The Argentinean equity positions contributed
almost the entirety of the profit – the new government has continued to impress
international onlookers (lifting capital controls, taxation changes, settling
with the bond holdouts and issuing new debt, etc) and MSCI put Argentina on
review for possible inclusion into the Emerging Markets indices (potentially in
mid-2017). The
early impact of this was most visible in the position in Pampa Energie (PAM)
which contributed over 100bps on its own.
It’s a beneficiary of the move to market prices (removal of
subsidies/etc), which although gradual will positively impact profitability
over the coming years, and its decent liquidity/size and management history,
has resulted in the stock being one of the first to attract large mutual fund
interest. The probability is Our Man
will be looking to exit the Argentinean names during 2017, most likely in the
run up to the MSCI decision.
Elsewhere, the other
equity-orientated books were positive contributors during the quarter. The Technical book (+50bps) benefited from
the rising market (post it’s mid-July addition to the portfolio). The Equities book (+81bps) currently holds
just a position in Vipshop Holdings (VIPS), a Chinese Internet retailer, which rallied after
announcing strong Q2 growth and earnings. The company retains an interesting niche in the
Chinese market, and unlike many peers is already generating a healthy profit.
Despite being in the
portfolio for only a few weeks, the Precious Metals book (+99bps) nonetheless contributed
strongly. The Energy Efficiency book
(-2bps) had a marginal impact, as the sole position was liquidated.
Portfolio
(as at 09/30 - all delta and leverage adjusted, as appropriate)
21.6% - Technical (DDM, QLF and SSO)
17.3% - International/Country
(GVAL, and Argentinian names)
3.3% - Equities (VIPS)
-1.6% - China-Related Thesis (CROC – Short Australian Dollar)
-44.3.5% - Currencies (EUO – Short Euro, and YCS – Short Japan)
45.7% - 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.