Below are excerpts from the quarterly report of a private family office we manage. Results are only audited on an annual basis.
June 30, 2016
TwinPeak Capital NAV (the “TWIN”) increased 4.38% versus a 7.90% loss for the iShares Core MSCI Pacific ETF (the “MSCI Pacific”) for the year ending June 30, 2016. The following table compares the TWIN’s unaudited performance (after fees) with that of the MSCI Pacific for various periods ending June 30, 2016.
24th June 2016 marked a historical moment. The United Kingdom voted 52% to 48% to leave the European Union in a referendum that revealed deep divisions within political parties, generations and between the different regions of UK. UK’s historic vote to leave the European Union shocked markets around the world. Investors responded with a mix fear and excitement. We see the GBP and Euro both sinking the most. The Sterling is now trading at its weakest levels since 1985 and the Euro suffered its biggest intraday drop since it was introduced in 1999. Additionally, US Treasury yields posted the biggest decline in seven years and the yen jumped to an almost two year high. Gold soared 8% as investors piled into safe haven assets and global equities being wiped off. Any investor, be it value or not, would definitely feel that any dip would have been an ideal opportunity. How often do we witness such volatility and huge dips? Our take would be don’t be a hero, most of the market is still in denial and shit has only just started. While Britain may have voted to leave the European Union, the whole process of leaving will take roughly 2 years. Furthermore, there are still many questions that are not answered. What will happen to all of the trade deals that are currently in place? Trade agreements drafted between the European Union and Asia, with Britain exiting, how long would these trade agreements take to be done again? What about the bond markets, or the debt that is tied to the European Central Bank? Will other European countries follow Britain’s example? The list of questions goes on and on. The one certainty that everyone should see is that there is no certainty. The ramifications will take time to play out. Investors have to be sure they are not catching a falling knife when making an investment decision. For us, we will be looking at companies with little exposure to the European Union but who have been disproportionately sold down. We are excited in the upcoming weeks to deploy our remaining cash hoard. It is only during such moments of panic where opportunities present itself for us to take advantage of and achieve large-sized gains. With the recent brexit, don’t try to be a hero, but wait patiently before deciding to deploy the cash.
For 4Q2016, the portfolio returned 0.56% nett of fees. The poor market conditions with the Brexit affected our portfolio value. Despite not meeting the 10% benchmark for this fiscal year, we remain confident of meeting it over the longer term. In terms of specific securities within this quarter, one major change shareholders would see in the portfolio would be the exiting of Japan. As discussed in last quarter’s report, we had been evaluating the merits of staying invested in the Japanese market. After much deliberation, we decided to take advantage of the high Yen and completely exit the market and. With that, we were able to offset a substantial portion of our capital losses. Our small allocation allowed us to contain our losses to a minimal amount with respect to the entire portfolio.
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