Seinfeld, active fund managers underperforming, the pound and IG markets, AGF & KAR / NGE.

Seinfeld & fund managers underperforming

Firstly I want to touch on the volatility in the pound. Most of this year I have broadly favoured looking for foreign currency exposure when AUD/USD is above 75 and more so at 77 as a guide.

A few months back when it rose above 75 I made the error of shorting AUD against the Singapore Dollar and the Pound, rather than just the USD. Seinfeld fans would know the episode where George Costanza figures all his decisions in life have failed him so he reasons doing the opposite to his instincts will make him a success, and of course it does! Working in the funds management business I often felt the same could be said of many fund managers, given after fees studies say the majority fail to outperform.

Here is some recent data about that.

This is a fantastic read about funds in Australia underperforming here.

Derivatives, flash crashes, the pound and IG markets

It reminds me that on my to do list was to eventually open up a separate account that actually invests and trades in the George Costanza way, doing the opposite to the consensus. Unfortunately the time I referenced to this a few months ago looks to have failed. I figured every man and his dog in the industry was forecasting a much weaker pound after Brexit that it would not occur. The trade started well for a while but has been punished and I lost 10% which is a fair hit in a currency in that time where I think I am stopped out. I say think because IG markets seem to revise the highs and the lows in this flash crash session so they currently are saying I am not stopped for some reason. But it just highlights the bizarre world of these markets and spread betting.

I wrote recently I have a reluctance to implement views this way. The volatility in the pound has highlighted that again this week. There was also the famous “flash crash” in the U.S. stock indices a few years back, and maybe a couple of years ago a massive move in the Swiss franc one session. I noticed some others I had forgotten about in this link.

These examples are just one reason why I try to avoid too much use of these instruments for example in an IG markets account, numerous examples where it causes havoc with stop levels. Where do you put your stop levels? That is why I effectively invested in AGF recently as a USD cash play rather than using something like IG markets and shorting AUD/USD.

I probably should stop any sort of spread betting and would advise that to others. I do watch how much money leaks out. I don’t mind some small loss here overall as I find the positions are usually “risk-off” trades that help me sleep better at night and make me less speculative about picking stocks, call it insurance if you like. It has also helped me this year not fearing corrections and making sure I didn’t sell the likes of winners such as AIK or SSM too early to bank profits.

AGF – I think some other investors of late have been buying AGF for similar reasons as I outlined recently. I have noticed that even though the AUD/USD is not a lot different from when I bought, the price (adjusted for distribution) is probably been trading mostly 3% higher already. I end up re investing the distribution back into AGF when I received it and bought some more. I am hoping for some more weakness from here to maybe even buy more again. Hopefully because the stock ceases trading around Christmas many more retail investors might not be comfortable and just sell out. From what I have seen so far though some buyers will probably be happy to buy off them and I probably won’t get the chance to top up more.

KAR / NGE – If the George Costanza opposite fund was up and running I’d say it may well have taken positions in the energy sector this year as I have tended to find most articles suggesting weaker oil prices all this year, though the opposite seems to be occurring thus far.

The attractiveness sometimes of being in a cash box company trading well below the cash backing that hasn’t actually done anything for a long time, is that if it actually does something there is potential for a big bounce. This occurred with KAR on Friday. That was one reason I went into KAR, another reason was as I just stated that no one seemed to think oil could rise when the year began. The acquisition announcement Friday seems to be well timed by KAR as I think more are coming around to the view that maybe the market was too pessimistic on the oil price and companies within the sector. I am also more encouraged by this as I have another indirect exposure via NGE, another cash box which spent from memory about a quarter of its funds on a strategic investment in KAR. Subject to the oil price staying close to $50 I expect KAR can be further positively re-rated by the market in the future.

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