Various recent portfolio changes

I would have to admit I am quite staggered by the moves we have seen since Brexit. I am not surprised that the market found some support given the initial panic, but to post new highs so quickly together with highs in bonds and in the gold price was a shock to me.

As I write the stops on my Dow shorts at 18,505 in the September contract look like they will get hit soon so I shall comment on the asset allocation assuming this occurs, although it is not a forgone conclusion. Therefore, I predict the market will hit 18,505 and proceed with a stock market crash!

That is all technical speak for basically I just f&cked up with the portfolio hedges. Well in my defence I made the point at the time that the rationale in some part of the portfolio protection was to keep in place existing longs and pursue more compelling activist opportunities in the short term. Amongst those mentioned at the time were HHV, AGF, HHY, GVF, AIQ, KBC. In order to keep my cash equivalents relatively similar in the event my shorts are stopped out I have been lightening up some holdings. In those just mentioned I sold my AGF as I wrote recently, and also in the last week sold GVF (1.055). With HHV (1.345) and KBC (0.175) I have recently sold about half of my positions. SSM (0.79) even though I recently wrote were cheap at 80 cents, I decided to sell half as this was an unusually large position in my portfolio from recent outperformance. RNY (0.12) I crystallised the loss on my remaining half position (ouch!) as I didn’t like the recent announcement, and my effective after tax sale level is higher than the market.

I’ll eventually expand more on the blog about some of these trades. To summarize briefly, the activist type trades that were in part a reason to short the indices have pleasingly all outperformed the U.S. indices that I shorted since that time. In the case of HHV, AGF, HHY & GVF I found it particularly interesting that in these cases I recently bought only a couple of months or so ago during which time since the NTA performance was relatively lacklustre. Yet we have seen discount compression of nearly 10% in all cases in such a short time. So where we are now , I no longer find it compelling to short the indices and hold as much in these situations. The outperformance roughly offset the money I will lose on the shorts and the options. Assuming of course I am stopped out and the options are worthless. If miracles happen and the market reverses downwards I am fortunate to benefit from the shorts and the recent lightening up of various positions as mentioned above.

I purchased a small amount of WCB (Warrnambool Cheese) at 6.86 recently which I will expand on at a later date. So far the trade hasn’t got a great taste about it. Maybe it will be like Nagacorp (3918:HK) earlier in the year, those that follow me later can do better?

I have more free time over the next couple of months. Behind having a few more beers is my priority to add more detailed comments than I have been of late very soon. Recently I have just tried my best to keep up posting only the trades rather than expanding much on the rationale, but I should get around to that eventually.

Currency wise my underweight of AUD is fairly modest at 5%. With the recent U.S. jobs data not the worst and the Fed not having to be scared about stock market levels the USD does not look too bad at the moment. Therefore, I don’t mind the AUD climbing right now. If we see 77 soon (where it failed last time and I profited) I will look to make the position meaningful by buying the ETF ticker USD. If I keep getting this wrong from there well maybe I can reduce the amount of months I need to come back to Australia, suddenly then I am not so underweight!

Been interesting times since the Brexit vote. Was there anyone that day of the result that predicted equities, bonds and gold to make new highs and so soon? I am sure they are marketing their services and getting their face on CNBC if they did. The strange price action across asset classes does concern me though and makes me want to look at further simplifying the portfolio in the months ahead if I get the opportunity. That will mean continuing a bias to simply hold more boring cash, less derivatives trades offsetting longs, perhaps less holdings to monitor in general, whilst reducing some holdings with high beta.

I’ll write more later on about the returns I have had. To summarise they have exceeded my expectations substantially over the last financial year in a relatively flat equities market environment. July has continued well thanks to the gold holdings discussed here since the beginning of the year. (EVN, RMS, NST, OGC, CEF:US, GDXJ:US). It feels a little crazy as I have mentioned above with many asset classes booming hence I do not want to push my luck too much with this market. (if things turn ugly I might have to get a real job again!). Cash in some ways has been the most dangerous asset to hold since 2009 with all the central bank games of asset price inflation and I would never recommend placing all one’s funds in cash. However, the next year being boring and having a quarter or maybe even a third of one’s portfolio in cash may not be so silly.


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