It feels a bit strange to even be writing about my portfolio returns, one week after the UK voted to leave the European Union. The last week has been one of politic upheaval and surprise and the Labour party seems to be tearing itself apart. I think it will end up splitting with a "New Labour" party being formed and the present Labour party being a far left version.
Immediately after the surprise vote, markets plummeted, which was to be expected. The pound fell by around 10% against the USD, from a fairly low level historically. And global markets also plummeted. Many market commentators appeared to panic, and even educated friends of mine seemed genuinely scared. My view was, and is, that panic will dissipate as the long negotiation begins and this negotiation becomes just like any other international trade or political negotiation - a very boring thing to the general public. I voted to leave the EU because I believe that the EU cannot help but continue to be a protectionist bloc, and it will become evident that it is destined to be the poorest performing region of the world over the long term. This was a one off chance for the UK to break free and develop into outward looking country the is economically open to the whole world, not just the EU. Whether this actually happens depends on the ability of those who are negotiating for the UK and how much they want to follow the electorate's mandate which was clearly for full separation. I am not particularly optimistic. Regarding the UK economy, I think there may be a short recession but the long term of performance of the company will depend on what is negotiated. We may end up with something that looks just like the current arrangement.
The market panic did dissipate as the pound stabilised and equity markets recovered to where they had been prior to the vote. Certain things did not recover, however, including UK Mid Caps, and I own three of them. In addition, because I hold certain of my equities via a spread betting account, which is effectively currency hedged, I didn't benefit much from the USD appreciation like my benchmark index did. But it is what it is - and nothing to do with Brexit was the fall in Alternative Asset Opportunities as it was disclosed that it was receiving Cost of Insurance Increases. I think the full in TLI was overdone but time will tell. In addition, I took the opportunity to buy Leucadia when markets were low. I am betting that Richard Handler, who has done a great job over many years of building Jefferies, is not the awful businessman and capital allocator that many seem to think. At just over half of book value, it could do well if just a few things go right.
To summarise - a terrible quarter, but I don't think the Brexit vote has changed the investing environment much and in ten years it will be seen as a blip on economic history.
Saturday, 2 July 2016
Quarterly Return
| Portfolio as at end of June | |||||||
| Asset | Bloomberg Ticker | ||||||
| Exova PLC | EXO LN | 20% | |||||
| Distribution Now | DNOW US | 12% | |||||
| Leucadia | LUK | 11% | |||||
| Tessenderlo | TESB | 10% | |||||
| AIG | AIG US | 10% | |||||
| Next PLC | NXT LN | 9% | |||||
| FLYBE | FLYB | 4% | |||||
| Alternative Asset Opportunities | TLI LN | 2% | |||||
| Plaza Centers | PLAZ LN | 2% | |||||
| Dolphin Capital | DCI LN | 0% | |||||
| GBP Cash | 22% | ||||||
| Quarterly Return | Quarterly Benchmark Return | ||||||
| -9.23% | 8.79% | ||||||
| Return Since Inception | Benchmark Return since Inception | ||||||
| 3.33% | 57.54% | ||||||
| Annualised Return since Inception | Annualised Benchmark Return since Inception | ||||||
| 0.94% | 13.87% | ||||||
| Quarterly Leveraged Return | Annualised Leveraged Return | ||||||
| -9.68% | 16.66% | ||||||
| Leverage | |||||||
| 36% | |||||||