2026: First Quarter Review

Portfolio Update 
- After an extended period without the anticipated rebound, OM exited substantially all Blockchain exposure (with Bitcoin at approximately ~$75K). While the position was given time to recover, that near-term bounce did not materialize as expected and OM exited.  OM may look to re-enter at more attractive levels should a broader market dislocation occur. 

-  OM also exited almost all the India exposure. The decision reflects relative opportunity set considerations rather than concerns with the underlying thesis, with similar investments (notably Brazil) offering more compelling risk/reward at this stage.

-  Following a strong start to the year, OM trimmed its US Reindustrialization exposure after it reached approximately ~12% of NAV.  The theme remains core, supported by continued momentum in domestic industrial policy and infrastructure investment. However, given strong performance and elevated positioning, partial de-risking was appropriate. The portfolio retains meaningful exposure.

Cash now sits at ~15% of NAV. Despite this, the portfolio remains positioned for volatility, with a meaningful allocation to dislocation-driven and commodity-linked exposures.

Performance and Review
Our Man’s portfolio rose +4.0% during the first quarter, outperforming the S&P 500 TR (-4.3%) and the MSCI World (-3.2%).  However, performance was marked by elevated volatility; with strong gains in January (+13.2%) and February (+1.6%) followed by a sharp pullback March (-9.6%).   

The volatility reflected the underlying positioning—particularly exposure to commodities and US Reindustrialization—both of which are sensitive to shifts in sentiment and risk appetite. Early strength provided an opportunity to reduce exposure selectively, though OM could have been more aggressive (e.g. Uranium).

The medium-term history of the portfolio is below:

 

First Quarter Attribution

The first quarter was unusual and, at times, chaotic. January in particular saw a near indiscriminate rally across most positions, with the notable exceptions of Blockchain/Crypto and India. That kind of broad price action across the portfolio is typically not sustainable and, in OM’s experience, is better used to reduce risk than chase further upside. 

Uranium (+347bps) and US Reindustrialization (+147bps) were the primary drivers of performance.

Uranium continues to reflect a structural supply-demand imbalance. Demand is increasingly supported by reactor life extensions and new project pipelines, while market pricing still assumes a relatively efficient supply response that has yet to show signs of materializing at scale. The disconnect remains in expectations rather than fundamentals.

US Reindustrialization reflects a broader policy-driven shift toward domestic capacity rebuilding. Markets continue to underweight the durability of this trend, treating decades of deindustrialization as structurally irreversible rather than a policy choice. That gap between perception and policy trajectory remains the core driver of returns, though it also increases sensitivity to sentiment shifts.

Elsewhere, Tin (+10bps) and broader Commodities (-9bps) ended the quarter roughly flat, but not without significant volatility along the way.

Shipping/Tankers (+374bps) was again a meaningful contributor during a time of uncertainty in the oil markets. Disruptions in key transit routes—most notably around the Strait of Hormuz—have increased effective shipping distances and constrained effective supply, pushing rates higher. We’ve seen versions of this before: when routes become inefficient, short-term tanker earnings can move well beyond even best-case assumptions.  The question is always duration. These conditions don’t persist indefinitely, but they also don’t normalize quickly. In the interim, capital allocation discipline across the sector has improved, with a greater share of earnings being returned to shareholders. Valuations reflect reasonable normalized earnings, though the position is expected to naturally decline over time as dividends are realized

The Idiosyncratic Equity position in JOE contributed +16bps.

Losses were broadly distributed, with the largest detractors coming from European/UK Financials (-131bps), Argentina (-126bps), and China (-44bps). The common factor was rising macroeconomic uncertainty, compounded by geopolitical risk, including US/Israel-Iran tensions and ongoing US-China frictions (e.g. the postponed Trump-Xi meeting didn’t help sentiment).

Carbon Credit Allowances (-98bps) were again a detractor. While the regulatory direction remains supportive over the medium term, the sizable impacts were pushed further into 2028, later than expected. This timing shift weighed on near-term pricing, despite reinforcing the longer-term supply tightness thesis.  At current levels, prices are approaching the regulatory floor price, which should limit downside. The upside case depends on whether CARB successfully implements the changes in a timely manner over the next ~6 months. The obvious risk is political—energy affordability is an easy place for pressure to build, particularly if broader geopolitical issues persist – though Governor Newsom is incentivized to encourage implementation before his term ends.

The India (-19bps) and Blockchain/Crypto (-69bps) were largely crystallized in early February as the positions were exited.


Portfolio (as at 1/1/26 - all delta and leverage adjusted, as appropriate)
Dislocations: 47.5%
24.6% - Uranium (URNM & URNJ)
6.8% - Commodities/Mining (LUNMF, TLOFF, PMCOF and IVPAF)
6.6% - Argentina (BMA, GGAL, SUPV)
5.8% - Tin (AFMJF, MLXEF and SBWFF)
3.7% - China (KWEB, FXI and JD)

Thematic: 35.5%
10.0% - Shipping/Tankers (STNG, INSW, TNK, DHT and FRO)
9.1% - US Reindustrialization (AIRR)
8.8% - European/UK Financials (BCS, LYG, NWG)
6.9% - Carbon Credit Allowances (KCCA)
<1.0% each in residual Blockchain/Crypto and India

Idiosyncratic: 2.6%
2.6% - Equities (JOE)

Shorts/Hedges: 0.0%

Cash: 14.3%

Disclaimer: Nothing above should be considered investment advice or a recommendation to buy or sell any security. While Our Man is invested in all of the securities mentioned, that alone is a terrible reason for anyone else to be. Our Man also holds some cash and a few other positions (of negligible value). Investors should always do their own work and make decisions based on their own circumstances, objectives, and risk tolerance—and not because Our Man happened to mention something here.

Portfolio Update: Apr/May 2025 – The Time is Now!

OM used the ‘Liberation Day’ volatility in the market to concentrate the portfolio into his highest conviction ideas and reduce/exit others during mid-April.   The most notable exits were the positions in Brazil, Greece and TPL (Equities); all are interesting but lower conviction, and the market volatility offered attractive entry points elsewhere.  OM will spare you the market and political commentary and instead give you a sense of the core positions in the portfolio.   

OM has increased his allocation to Uranium, now comprising 22.6% of the portfolio as of May 22nd. He has also streamlined the position, consolidating it into two ETFs that represent both major and junior uranium miners.  In a fast-changing and often complex world, Uranium stands out as an anomaly. It is remarkably straightforward - its only use is as fuel for nuclear power plants - and everything about its market operates at a slow, deliberate pace. The core investment thesis has remained consistent for years: the lifespan of existing nuclear plants is being extended, new ones are gradually being built, and demand continues to rise. Meanwhile, mining uranium remains challenging and won’t scale meaningfully without higher incentive prices.  The uranium market moves slowly: long-term contracts dominate, new plants take years to construct and therefore don’t immediately impact demand, and new mines require lengthy permitting and development timelines. For long-term investors, this creates a market where supply and demand are easier to track, and where dislocations - like the dip in sentiment seen recently due to a falling spot price - can offer compelling entry points.

OM reduced his exposure to UK and European Financials, which now represent 12.9% of the portfolio, after a strong performance that saw many of these stocks double over the past 18 months. The investment thesis, first laid out in Q4 2023, remains largely intact.  As UK banks have addressed legacy issues - cleaning up their balance sheets and strengthening capital ratios - and benefited from a more favorable post-COVID environment (stable economies and higher interest rates), their underlying earnings power is beginning to emerge. This has prompted a market reassessment: stocks that were once priced as dire investments - such as Barclays, which traded at just 0.3x Tangible Book Value and 4.0x forward earnings - are now viewed as merely undervalued, with valuations improving to 0.6x TBV and 7.0x expected earnings.  OM continues to believe these banks will deliver further earnings growth and return substantial capital to shareholders through dividends and buybacks. However, with much of the re-rating already behind us, future gains are expected to be more measured.

OM maintained his ~12.5% position in Argentina, expressed through holdings in the country’s banks. As noted in the previous quarterly update, the scale, ambition, and early success of President Milei’s reform agenda have been remarkable, leading to a significant repricing of Argentine assets.  Despite the positions appreciating 2-3x over the past year, OM has chosen not to reduce exposure.  With many of the reforms now enacted into law, OM believes these investments are lower risk than when initially established. Looking ahead, OM expects the reform momentum to continue - particularly if Milei’s party performs well in the upcoming mid-term elections - which could provide further upside.

The final two core positions have been part of the portfolio for some time but were meaningfully increased during April. Each will be covered in detail in upcoming write-ups but below is a brief summary of the current investment thesis for both.

OM increased exposure to the U.S. Reindustrialization theme, which now accounts for 11.5% of the portfolio. While those in urban centers - particularly in the Northeast - may not see it firsthand or find it plausible, an industrial resurgence is already underway across the U.S.  Although President Trump is likely to take credit for this trend, the movement predates his current efforts. The shift began in the wake of COVID-19 and has since gained momentum through substantial legislative support under President Biden, including the CHIPS Act, the Inflation Reduction Act (IRA), and the Infrastructure Investment and Jobs Act (IIJA). While reshoring had been under consideration before the pandemic, COVID served as a stark reminder of supply chain vulnerabilities.  The advances in automation that have reduced the impact of labor costs have helped to make domestic manufacturing more financially viable.

OM significantly increased the position in California Carbon Allowances (“CCA”), which now represents 9.4% of the portfolio, following an Executive Order (“EO”) signed by President Trump in April that questioned the legality of California’s Cap-and-Trade program.  This EO marked the latest in a series of political and regulatory headwinds that had introduced uncertainty and pushed CCA prices down to their mandated floor. Despite the headline risk, the likelihood of a successful legal challenge appears low and, importantly, would take years to play out. In response, California’s political leadership has moved decisively, unveiling plans to extend the Cap-and-Trade program through 2045 - an action that both reaffirms long-term policy support and enhances the investment case.


Portfolio (as at 05/22/25 - all delta and leverage adjusted, as appropriate)
Dislocations: 53.4%
22.6% - Uranium (URNM & URNJ)
12.9% - European/UK Financials (BCS, LYG, NWG)
12.5% - Argentina (BMA, GGAL, SUPV)
5.4% - China (KWEB, FXI and JD)

Thematic: 43.8%
11.5% - US Reindustrialization (AIRR)
9.4% - Carbon Credit Allowances (KCCA)
7.3% - Shipping/Tankers (STNG, INSW, TNK, DHT and FRO)
5.0% - India (IBN, INDA and SMIN)
5.4% - Tin (AFMJF, MLXEF and SBWFF)
4.2% - Blockchain/Crypto (IBIT, ETHE/ETH and OSTK)
1.1% - Commodities/Mining (LUNMF)

Idiosyncratic: 2.4%
2.4% - Equities (JOE)

Shorts/Hedges: 0.0%

Cash: 0.4%

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.  

Portfolio Update: May 2024 - Part I - There's a Supply Deficit

OM was starting to write a short note on the current market environment, but finds those notes dull to consume and OM has little original to say. Broadly, OM’s market view can be summarized as  - things aren’t as good as we’d like but not as bad as people think, though inflation is likelier stickier than the Fed would care to admit.

However, Our Man has made several meaningful changes to the portfolio over the last few 6 months, largely reflecting opportunities that he’s been watching for a while.  As such, it’s probably a good time for a portfolio update – in two parts, so it doesn’t become too long and unwieldy.

Portfolio Update – Part I – There’s a Supply Deficit
The broadest theme across OM’s portfolio is that of a supply deficit; primarily where an under-investment in supply coupled with a slight growth in demand has resulted in the supply deficit.   The theme is most obviously seen across numerous commodity markets, which represent about 1/3 of OM’s exposure.   More generally, this is something that impacts physical markets (commodities, goods, etc) and because of the rise of digital/software driven business models over the last decade+ OM think investors are poor at truly understanding the impacts.   One of attractions of digital/software business models is that marginal cost is (almost) zero and supply is (almost) unlimited.  For example, if I want to use Microsoft Office on my computer, the cost is almost nothing to Microsoft and my usage has no negative impact on your use of Office on your computer.  However, this doesn’t hold true in the physical world – if I use this barrel  of oil then you cannot, and if there is a supply deficit we are effectively competing to use that barrel of oil leading to a very different impacts on price.

Uranium (24.3%) remains OM’s largest position as it is the purest expression of the supply deficit.  Given the 7-year plus time horizon to successfully permit, build and begin to operate a uranium mine, the supply side is relatively easy to project.   Uranium’s sole end use is as they key component in fuel for nuclear power plants, who purchase it under long-term contracts.   Over the last few years, OM has noted the sharp turnaround in sentiment towards nuclear power.  This has seen nuclear power become accepted as part of the clean energy solution (including within the EU’s green taxonomy/bond program), increased uranium demand through life extensions for nuclear plants (even in the US!) and plans for new plants globally.   This imbalance of projectable supply and increasing demand has not gone unnoticed by the markets with both the Uranium price and the mining stocks up multiples over the last few years.  Despite this, OM retains a sizable position believing that while we’ve reached the ‘end of the beginning phase’ there remains further to go.  Why?  The largest miners keep missing production targets, the best assets keep extending their timelines to start production, the US is determined to wean itself from Russian uranium fuel, the continued nuclear plant extensions and starts bolster demand, and finally the largest banks are only now starting to cover the sector.

OM sees similar dynamics are playing out across Commodities/Mining (1.3%), and in particular in the smaller Tin (7.8%) market.  The supply deficit in the Tin market continues to edge closer as supply in Indonesia & Myanmar – major tin producers – run into problems.  The demand-side case continues to strengthen; as a reminder, ~50% of Tin demand is as solder, primarily as the ‘glue’ to make semiconductors – it is a direct beneficiary of the emergence in AI, and the subsequent demand for AI chips and increasing computing power.   Furthermore, Tin has no substitutes in the production of semiconductors, and has a no impact on the price of the end goods – the iPhone contains <25c worth of Tin, but wouldn’t work without out it.  If the tin price increased by multiples, it has almost no impact on end demand.   Finally, while commodities aren’t a core driver of the Brazil (4.7%) thesis, they are a meaningful contributor given the country (and its companies) are a major supplier of many commodities.   OM suspects that we’re seeing the impact of supply deficits in Uranium ahead of in other markets given the simplicity of its story.  As such, it’s likely that as OM’s exposure to uranium decreases over time, much of that capital will find its way into other commodity-related themes that are only starting to recognize the supply deficits in their markets.

Outside of commodities, the impact of limited new supply and increased demand is also clearly visible in Shipping/Tankers (12.1%), where positions have rallied strongly over the last 3-years.  This originally began due to the IMO 2020 changes but has been supercharged as a result of the Russia/Ukraine war.  We’ve previously discussed its impact on the demand side, but the sanctioning of tankers has also reduced supply.   The Russia/Ukraine war has had the effect of highlighting and exacerbating the imbalances in the tanker market, pulling some of the performance forwards and OM expects the position to continue to shrink over the short-to-medium term.

Elements of the supply deficit dynamic also help underpin some other positions including Idiosyncratic Equities (5.7%), Carbon Credits (2.3%) and Blockchain/Crypto (3.8%).  Both idiosyncratic equity companies (TPL and JOE) own real estate where there is increased demand for its usage be it through oil/gas drilling in the Permian (TPL), or increasing population and build out in Northwest Florida (JOE).  California Carbon Allowances are a man-made ‘environmental commodity’ where regulation specifically targets reducing supply over time to drive the price higher.   Finally, OM has added to the Blockchain/Crypto position – while the Bitcoin halving slows future supply, OM suspects that this 12-month post-halving cycle will be driven by Institutional FOMO (vs. prior halvings’ retail FOMO) now that exposure can be more easily obtained via ETFs.   

Part II will look over the rest of the portfolio...

 

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.

Portfolio Update – September 2022

A small note on the current environment and market; economic conditions are uncertain and are being impacted by a cross-current of conflicting short and longer-term trends.  These include the consequences of the COVID-19 lockdowns and the subsequent multi-speed re-openings, the varying amounts of fiscal and monetary support provided during COVID, a decade+ of loose monetary policy, and rising inflation caused in part due to supply constraints and as a result underinvestment in commodities that have been exacerbated by the Ukraine/Russia conflict.  As a result, there has been contradictory signals across countries and within different parts of the economy and markets, meaning there are a broad range of outcomes for both growth and inflation and there is data to support almost any view.

Market wise this has led to increased uncertainty and higher rates, which have been bad for stocks and credit.  It has also seen a tendency for the market to extrapolate limited datasets to smooth the uncertainty but then have sharp reversals when contradictory data comes out.  This is further compounded by the uncertainty over the Fed’s preference function due to the absence of inflation over a prolonged period.  What matters most to the Fed between inflation, financial sector stability, economic growth/unemployment, currency strength/stability, etc. and by how much?   

OM’s market view can be summed up as 🤷 with reasonable cases able to be made for almost any stance.  However, Our Man made several changes to the portfolio in early September.  These largely reflected some structural things that OM has been pondering a while with the most notable being profit-taking in Shipping/Tankers and the elimination of the Funds bucket of the portfolio.

For a broader round-up, and thoughts on the various buckets, please see below:

Uranium: 25.4% NAV

Marginal change, through the reduction in the Paladin Energy (PALAF) position

Since its inception, the uranium position has primarily been about the supply deficit and how higher prices would be needed to encourage greater supply.  While there have been signs of changes in the perception of nuclear generation and potentially increased demand (i.e. new power plants) over the last couple of years, the conflict in the Ukraine and resulting energy issues have acted as a catalyst and brought things to the fore.   So far in 2022, we have seen the UK lay out a strategy to build 8 nuclear power plants, Japan signal a return to nuclear power, the US further support its nuclear plants including the Inflation Reduction Act and California trying to u-turn on closing the Diablo Canyon nuclear plant, not to mention a spate of plans for small-modular reactors in Europe.  This unexpected increase in future demand merely underscores the supply deficit and potential upside for uranium.

Shipping/Tankers: 12.6% NAV

Major change through sale of ~40% of the position across all names

The decision to trim the position was relatively easy as OM the Shipping/Tankers position is up 100%+ in 2022.   Tankers have been a significant beneficiaries of the energy market turmoil caused by the Ukraine/Russia crisis.  As simple example, pre-conflict a small Aframax tankers would fill-up in Russia make the short run to Europe (Rotterdam) and then head back to refill.   Due to the conflict this has become something akin to a couple of Aframaxes fill up in Russia, head out to sea to a ship-to-ship transfer to a larger VLCC, which then travels all the way to India or China (and back again), while other tankers service Europe with oil from the US or Middle East.  While this is a massive simplification it’s a good demonstration of how inefficient today’s reality is compared to pre-conflict!   Tankers are traveling a lot of extra miles and with fixed supply, unsurprisingly price is the variable that has changed.

So why keep the position (and in larger size vs. end-2021).  The tanker fleet is getting old and the order book is the lowest since 1996 so supply will be constrained for a long time.  Furthermore, while Tankers will be hurt if/when there’s a resolution in Ukraine and/or a recession, we’re also unlikely to revert to the pre-crisis trade routes.  This is especially the case when we look at where the oil is being exported (US oil production/exports near all time highs), where the refineries are and where the end consumers are.  

Given the above, OM leans to the view that the dislocation phase of the tanker trade is over, and the tanker market super cycle is finally beginning.  To reflect this, OM will move Tankers from dislocation to thematic at year-end.  The operating and financial leverage (and shady management) in the businesses means it won’t be smooth sailing and the position sizing reflects that and the thematic nature.   

Tin: 8.3% NAV

Minor change through increasing the position in Alphamin Resources (AFMJF)

The tin price has been very volatile over the last year; the current $21K price is down over 50% from its 2022 peak yet also near historical pre-COVID highs.  However, there’s been little change to the long-term outlook and the same demand-supply dynamics remain (https://ourmaninnyc.blogspot.com/2021/05/the-adventures-of-tintin.html).  OM took the opportunity to add to the Alphamin position; it is a largely debt free company that’s profitable at these prices as the lowest cost major producer, and it also has the largest untapped tin deposit adjacent to its existing mine.

 

International: India (6.7% NAV), Greece (3.5% NAV) and Brazil (2.2% NAV)

Minor change, exiting Vietnam but adding to Brazil

The position in Vietnam was exited – while Vietnam will benefit from supply chains being diversified from China, it’s more likely that many of these supply chains will be brought back to Americas than prior to COVID/Ukraine.

OM added to the position in Brazil – it’s a commodity rich country, with a cheap market, where interest rates (at 13.75%, from 2020 lows of 2.00%) are nearer the end of their cycle and with a pivotal election later this year.  It’s something OM continues to spend more time on, and if it’s going to be sized up meaningfully then OM will write in greater depth.   OM is additionally looking at Turkey, as a potential investment idea.

 

Equities/Funds: 5.6% NAV

Major change: exited all of the Funds’ positions (GVAL, CWS, ARTTX, and CAPD) and added marginally to JOE.

The biggest change to the portfolio was OM exited the Funds’ positions.  This is something that OM has been toying with for much of the last year – the positions were introduced a while ago to provide some consistent equity exposure as OM was chronically underinvested.  Today, OM has vastly more ideas, greater conviction in them, and a better understanding of his own investment style.  As such, there’s somewhat less need for the Funds positions and their capital will be allocated elsewhere.

Software/Tech (2.8% NAV) and Biotech (5.0% NAV)

No changes, though both Software and Biotech are approaching levels that are beginning to get attractive.

Carbon Credits: 0.0% NAV

OM exited the position in Global Carbon Credits (KRBN)

While OM is intrigued by the Carbon Credits space, in part because it would take a material event to push Europe and California away from believing their carbon cap-and-trade systems were part of a green solution.  Unfortunately, the Ukraine conflict and its impact on energy and electricity prices in Europe is such a material event.  With Europe representing 50-60% of KRBN and a debate beginning to emerge (https://www.euractiv.com/section/emissions-trading-scheme/news/eus-von-der-leyen-rebuffs-polish-call-to-suspend-carbon-market/) over pausing Europe’s cap-and-trade system, OM decided to exit the position.  However, you should expect to see it back in the portfolio in the future though it may be expressed differently (e.g. KCCA, which just reflects California’s Carbon Allowance system and is trading much more attractively).

Blockchain: 4.1% NAV

Marginal Change; exited Bitcoin (GBTC) but added to position in Overstock (OSTK)

OM was long overdue in exiting the Bitcoin investment, which turned a great profit into a healthy one.  The capital was largely reallocated to the position in Overstock (OSTK).  The broad outline of the case for OSTK is largely unchanged since OM’s original write-up.  The developments include the Founder/CEO departing and Overstock moving its blockchain assets into a vehicle that’s managed by a professional VC.   The most prominent of these blockchain investments – tZERO Group – is a blockchain based exchange that is regulated by the SEC and FINRA.  It received a strategic investment from Intercontinental Exchange (ICE, who run the New York Stock Exchange) earlier this year, which saw David Goone (a long-time ICE executive) become tZERO’s CEO.

Commodities: 1.5% NAV

No changes.  

OM is tentatively interested in increasing the size of this bucket, especially if recession fears increase and prices become more attractive.  After a decade of underinvestment there are supply/demand imbalances across many commodities, which are a core component of electric vehicles and the buildout of renewable energy.  However, OM is cognizant of the strong correlation of this bucket with a number of others in the portfolio (e.g. Uranium!), especially when markets are stressed or recession fears increase.

Shorts/Hedges: 5.7% NAV

Marginal change; added to OM’s position in PFIX

OM expects that future interest rates over the next 5-7 years will be higher than historical ones over the last 5-7 years.  For simplicity, PFIX invests ~50% of its capital into a US Treasury Bond (5-year) and uses the balance to purchase put options at 4.25% on the 20-year rate, expiring in May 2028.  In essence, with the value of the Treasury Bond providing a floor for PFIX should OM be wrong, the option provides substantial upside should medium term rates move beyond 4.25%.

Cash: 16.8% NAV

As a result of the portfolio changes, especially the liquidation of the Funds and reduction in Shipping/Tankers, OM is holding substantially more cash.  This cash level reflects OM’s view of the uncertainty in the economy and markets but expect OM to slowly start to invest it as either this fades or prices become more attractive.

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. 

2022: First Quarter Update

 Portfolio Update
- Carbon Credits:  OM has debated taking a position in carbon credits for a while but finally took the plunge at the start of the year with an initial position in KraneShares Global Carbon Strategy (KRBN).   It has become clear with the Paris Accord & COP26 that the Western world (at least) is focused on carbon and has both set a target and timeline for its reduction.  To achieve these would require aggressive moves; California and the EU are the leading proponents of and first movers in decarbonization and have large cap-and-trade carbon allowance programs.   Unsurprisingly, the goal of these programs is to reduce carbon and hence both have created incentives for these carbon credits to increase in price over time.   KRBN has ~90% of its capital invested in EU and California Carbon Allowance Futures.

- Commodities/Mining: The case for many commodities/mining can broadly be understood by reading any of OM’s pieces on Uranium or Tin.   While OM believes these two commodities are the clearest examples of limited/constrained supply and increasing demand, many other commodities show a similar supply issues due to years of underinvestment and increasing demand.   Ironically, the demand side is often impacted by the increased desire for ‘renewables’ or ‘electric vehicles’, which are vastly more commodity intensive than the fossil fuel alternative.  OM began the theme with a position in Filo Mining (FLMMF), though the overall size of Commodities/Mining is likely to be limited while Uranium and Tin remain such significant positions.

- Energy: OM exited his position in Sandridge Energy (SD) during the first quarter.  The company continues to perform, and almost tripled for OM. Energy displays many of the same traits as Commodities/Mining, and OM preferred to allocate his capital there.

- Short/Hedges:  OM implemented a hedge for the first time in a long while; it seemed clear that inflation would lead to higher rates in the short-term with with various factors (including demographics) also suggesting the 40-year bull market in bonds could be over.  OM has largely avoided expressing such views in the past due to the limited ways in which to execute them efficiently.  This changed last year, after Harley Bassman and Simplify, launched the Simplify Interest Rate Hedge Strategy (PFIX).  For simplicity, PFIX invests ~50% of its capital into a US Treasury Bond (5-year) and uses the balance to purchase put options at 4.25% on the 20-year rate, expiring in May 2028.  In essence, with the value of the Treasury Bond providing a floor for PFIX should OM be wrong, the option provides substantial upside should long-term rates increase over the next seven years.  (For the curious, or nerdy, page 7 shows the modeled profile)


Performance and Review
OM’s portfolio ended the first quarter +4.45%, after recovering from a terrible start to the year that saw it down over -12.5% for the year in the final week of January.  While equity markets also rallied back from their lows, both the S&P 500 Total Return (-4.60%) and the MSCI World (-4.78%) ended the quarter in negative territory.

First Quarter Attribution

 

Given the context of everything that happened in the markets during the first quarter, little in OM’s portfolio proved particularly surprising.  The quarter began with questions over whether inflation would prove to be transitory and whether (and by how much) the FED would have to raise rates.  The Russian invasion of Ukraine and subsequent sanctions highlighted and exacerbated the supply-demand imbalances in many commodities, which rose significantly.  This further entrenched the likelihood that inflation would be both greater and more persistent than expected, meaning the FED would have to raise rates quicker or higher (or most likely both) than previously anticipated.

Given all of the above, it’s unsurprisingly that OM’s winners were largely from the commodity and hard asset related investments.   The positions in Uranium (+411bps) led the way, as the case for nuclear power was further underlined as Europe’s reliance on Russian natural gas was made clear.  The quarter saw both France and the UK commit to building more nuclear plants, the US discuss potentially banning Russian uranium and/or tax credits for nuclear power.  OM’s other commodity positions – Tin (+136bps), Commodities (+36bps) and Energy (+44bps) – also contributed to performance.  In particular, the positions in Alphamin Resources (Tin) and Filo Mining (Commodities) were good contributors after both reported positive results in their respective drilling programs.  

Outside of direct commodity exposure, the other winners were also related to the key macro changes.  The Shipping (+238bps) positions in oil and product tankers were direct meaningful beneficiaries of the conflict in Ukraine.  Changes to the efficient flow of oil and its products, leads to extra seaborne miles of travel and higher utilization for the tanker fleets.  This was most cogently demonstrated by Zoltan Pozsar (of CS) who noted that while it's easy to say China will buy Russian crude oil rather than Europe, in the real world just this change would use all the existing ships running the European route and tie up 10% of the VLCC tanker (the largest size of tanker) fleet!  The Short/Hedge (+36bps) directly benefited from the rise in rates, which saw its embedded options become more valuable.  The Idiosyncratic positions (+61bps) also aided performance; both Texas Pacific Land Trust (TPL) and St Joe Co (JOE) are real estate plays.

The detractors from the portfolio were equally unsurprising – growth stocks are long duration assets as their profits/cash flows occur well into the future.  Unsurprisingly, as medium and long-term rates increase these cash flows are worth less today than they were previously.  Three of the primary detractors were Blockchain (-164bps), Biotech (-104bps) and Tech-4th Industrial Revolution (-84bps) which all reflect this concept.  The Funds book (-88bps) was driven by negative performance across the board.   The negative performance from Vietnam (-42bps) and India (-31bps) in part reflected the geopolitics around countries believed to be in China/Russia’s orbit and the possibility of reduced globalization with supply chains moving nearer end customers and to friendlier countries.  Finally, the position in Carbon (-24bps) was a detractor as there was some debate as to whether Europe would pause or waive its cap-and-trade allowance program due to the war in Ukraine.  The position recovered most of its losses by quarter-end; decarbonization is quasi-religious in Europe/California and it will take more than a potential world war to slow it down.

The positions in Greece (+8bps) and Brazil (+12bps) weren’t material contributors, though Brazil – a commodity exporter – rose meaningfully in the quarter.  After a tough couple of years and with an upcoming election and rates nearer a peak than trough, it’s a position that OM is spending a lot of time researching.



Portfolio (as at 03/31/22 - all delta and leverage adjusted, as appropriate)

Dislocations: 41.5%
27.4% - Uranium (URNM, CCJ, NXE, PALAF, DNN, BNNLF and URG)
10.2% - Shipping/Tankers (STNG, INSW, EURN, TNK and DHT)
3.8% - Greece (GREK & ALBKY)

Thematic: 39.1%
9.0% - Tin (AFMJF, MLXEF and SBWFF)
8.3% - Blockchain/Crypto (GBTC, ETHE, and OSTK)
6.2% - India (IBN, INDA and SMIN)
4.9% - Biotech: 4th Industrial Revolution (IBB & XLB)
3.2% - Tech: 4th Industrial Revolution (JD & WCLD)
3.2% - Vietnam (VNM)
2.1% - Carbon (KRBN)
1.7% - Commodities/Mining (FLMMF)
0.4% - Brazil (EWZ)

Technical: 0.0%

Idiosyncratic: 15.8%
10.5% - Funds (ARTTX, CWS, GVAL, and CAPE)
5.3% - Equities (TPL & JOE)

Shorts/Hedges: 2.6%
2.6% - Higher Medium-Term Rates (PFIX)

Cash: 1.0%

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.