Portfolio Update
- Energy: One of the epicenters of the collapse in March, and OM suspects it will be a substantial dislocation opportunity. OM thought this opportunity was likely still a year or two away in oil-related names, but there were some interesting US natural gas names. OM took a position in Antero Resources (AR), who bought back both stock and bonds during the market stress and are well-hedged on their gas production.
- Blockchain/Crypto: Our Man sold 25% of his Bitcoin exposure (GBTC) in late December. The position was up almost 3x from its cost basis and the position was bumping up against the maximum size (~12%).
Performance and Review
Our Man’s portfolio finally participated in 2020’s equity party, rising over 30% during the fourth quarter and comfortably outperforming the markets. It was a long time coming after the portfolio suffered mightily in Q1, and failed to join the equity rally until November.
The fourth quarter’s performance saw the portfolio end the year down -5.8%, which still materially lagged equity markets. For comparison the MSCI World (ND) was up +15.9%, and the S&P 500 was up +18.4% in 2020.
Fourth Quarter Attribution
The portfolio’s fourth quarter performance was driven by the positions in Uranium (+11.56%) and Blockchain (10.87%). The Uranium performance was the least surprising; COVID-19 brought the supply deficit in the Uranium market to the fore. This was further highlighted by Cameco halting production at its Cigar Lake mine in the 4th quarter and increasing its purchases in the spot market. Unlike earlier in the year, investors were more interested this time with volumes in most Uranium names increasing materially along with prices. After an almost decade long wait, the bull market in Uranium seems to have finally started. Given the material supply deficits in the upcoming years, and the lack of capex over the last decade, OM hopes that this is just the start of the Uranium positions contribution.
OM’s position in Bitcoin (within the Blockchain theme) was well-timed with the crypto-asset rallying spectacularly. Bitcoin is the logical extension of almost everything various market factions currently believe!
- Software’s taking over the world! Bitcoin’s software, that’s it…
- Total Addressable Market (TAM) is more important that profit! What has a bigger TAM than pristine collateral and/or money!
- Concerned about Fed money printing, unlimited stimulus and (hyper)inflation? Bitcoin has limited supply and is a hedge to those risks!
- Frustrated by the ‘elites’ – politicians, Fed, etc? Stick it to the man, and own bitcoin.
- Need faith in something? Bitcoin’s even been compared to a religion…
And so on…Is Bitcoin really all of these things? Of course not, it may not even be any of them. However, in this moment, Bitcoin is the reflection that people want to see. Throw in a reflexive technical situation – an institutionalizing asset where one vehicle (GBTC) is consuming all of the new supply – and there’s a possibility of a bubble that will extend far beyond even the bulls’ imaginations. As previously noted, OM has some long-term crypto exposure elsewhere and the position in this portfolio is more flexible. It is currently managed within a 6 to 12% band; when it reaches the maximum it is cut back to the middle, and should it reach the bottom-end OM is inclined to add more. As bitcoin (and GBTC’s) price increases, expect the position size to fall and that band to narrow.
The 4th Industrial Revolution (+155bps) technology positions in SaaS companies (WCLD) and JD.com were the most consistent performers throughout 2020, and performed well again in Q4.
The portfolio also clearly benefited from the sector rotation in the market, with both the Energy (+44bps) and position in Texas Pacific Land Corporation (TPL, +161bps) rising. TPL will also complete its reorganization from a Trust to a Corporation following a year-long process at the start of 2021.
The Funds (+254bps) exposure was a healthy contributor, benefiting from the rotation in stocks and the out performance of non-US markets. This exposure to international markets, especially
Emerging markets, saw healthy gains for India (+67), Vietnam (+77bps), Greece (152bps) and Brazil (17bps).
The sole detractor from performance was the Shipping/Tanker (-34bps).
Portfolio (as at 12/31/20 - all delta and leverage adjusted, as appropriate)
Dislocations: 43.1%
25.7% - Uranium (URNM, CCJ, NXE and URG)
13.2% - Shipping/Tankers (STNG, DSSI, EURN, TNK and DHT)
4.2% - Greece (GREK & ALBKY)
1.1% - Energy (AR)
Thematic: 24.9%
9.6% - Blockchain/Crypto (GBTC)
6.6% - Tech: 4th Industrial Revolution (JD & WCLD)
3.8% - Vietnam (VNM)
3.2% - India (INDA)
0.5% - Brazil (EWZ)
Technical: 0.0%
0.0% - OEW Technical positions (DDM, SSO, and QLD)
Idiosyncratic: 17.3%
14.2% - Funds (ARTTX, CWS, GVAL, and CAPE)
3.1% - Equities (TPL)
Shorts/Hedges: 0.0%
Cash: 14.7%
Disclaimer: Nothing above represents a recommendation in any way, shape or form so please don’t even think of trying to take it that way. For added clarity, while Our Man is invested in all of the securities mentioned that’s a terrible reason for anyone else to do so. Our Man 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 given your own circumstances/risk tolerance/etc.
