Luke's Global Fund achieved the following returns over Q3 2023:
FY Q3 2023: Fund return of -2.6% vs S & P 500 return of 7.0%
Year to date: Fund return of -8.1% vs S & P 500 return of 8.6% (excluding currency gains).
Our portfolio as at March 31, 2023 is outlined in Figure 1 below:
Figure 1- Portfolio Pie Chart
Note: All cash is currently held in US dollars.
TOP CONTRIBUTORS
Our contribution analysis for the three months to March 31, 2023 is outlined in Figure 2 below.
Figure 2 – Contribution Analysis Bar Chart
The most significant contributors to our underperformance were short positions. These included BITI (short Bitcoin), PSQ (short NASDAQ 100), and SARK (short ARRK).
REVIEW OF PORTFOLIO BREAKDOWN
The breakdown of the portfolio is outlined in Figure 3 below:
Figure 3 – Portfolio Macro Segment Pie Chart
The high cash position (+50%) is reflective of our opinion that we are in an inflationary bear market. More than 30% of our portfolio is in short dated US Treasury ETFs, yielding around 5%.
Through Q3 2023, global equities rallied on hopes for a growth impulse from China re-opening, and hopes for a “soft or no” landing in the global economy. This is likely to continue into 2024, and there is a possibility our short positions will continue to be squeezed into the US debt ceiling.
TRADING ACTIVITY
In the three months to march 31, 2023, we reduced our short exposures, selling our BITI (short Bitcoin) and JJN (short gold miners) positions. We intend to reduce our short positions into and post the US debt ceiling resolution.
We increased our position size in Gold, and opened a position in TLT (long dated US bonds). The reasoning behind these positions is these assets perform well during US debt ceiling crises, which appears to have a reasonable probability of occurring, given the divisions in Congress.
NEWS & REPORTS
We hold very small equity positions, given our expectation of a global recession arising around Q4 of 2023 as per 42Macro analysis. A debt ceiling crisis or further US regional banking issues may bring the recession forward, or continued & lingering US economic resilience may result in the recession being delayed into 2024.
We expect to re-open positions in 6 – 12 months time, and will resume a company reviews at that time.
KEY LEARNINGS THIS MONTH:
Patience. It is currently being tested in our short positions, which is particularly painful for two reasons:
1) Carry cost.
2) Portfolio relative underperformance magnified during equity market rallies.
We will maintain our short policy, of exiting our position when the VIX futures curve goes into backwardation. We will wait. We will be patient. Investing is an infinite game, requiring an infinite mindset. We will not always win every battle, but we will survive, and pick our time to take risk when the time is right.
If you have any opinions on the companies we hold, or would like to know more about our investments, we would love to hear your feedback.
Regards,
Sean
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