The bin fire that is High Beta assets in late 2021 continues into 2022. Luke's Global Fund achieved a return of -14.3% (in constant currency) return over the month of January, and a -7.1% return to date for FY22 on a constant currency basis Our International Benchmark, the S & P 500, returned -5.3% for the month of January, and the benchmark returned 5.1% to date this financial year.
Our portfolio as at January 31, 2022 is outlined in Figure 1 below:
Figure 1- Portfolio Pie Chart
TOP CONTRIBUTORS
Top contributors? Well, this month there were none to speak of. The portfolio performance for January suffered significant falls across the board, as investors switched out of high beta assets. Our contribution analysis for the month of January is outlined in Figure 2 below:
Figure 2 – Contribution Analysis Bar Chart
Review of Portfolio Breakdown
The breakdown of the portfolio is outlined in Figure 3 below. We continued to reduce our exposure to Goldilocks / Reflationary positions, and increase our Deflationary positions. However, our exposure to Goldilocks / Reflation holdings barely moved for the month, which cost the portfolio dearly in January.
It is becoming increasingly clear the US Federal Reserve has been too slow in responding to the supply - demand inbalance in the US economy. The US Federal Reserve’s only tool to address the supply - demand imbalance is to tighten financial conditions, thereby curtailing the demand side. This means 2022 will continue to be a hazardous year for investors, and growth investors in particular.
Figure 3 – Portfolio Macro Segment Pie Chart
TRADING ACTIVITY
During the month of January, we increased our exposure to assets that outperform in a deflationary macro environment. We are relying upon a portfolio of ETFs build a diverse Deflationary hedge portfolio, and our trades comprise of the following Exchange Traded Fund acquisitions:
Vanguard Long Term Treasury ETF (VGLT)
Vanguard Extended Duration Treasury ETF (EDV)
Pimco Exchange Traded Fund – PIMCO 25+ year zero coupon US Treasury Index Exchange-Traded Fund (ZROZ)
Blackrock Institutional Trust Company N.A. - BTC iShares 20+ Year Treasury (TLT)
Invesco DB US Dollar Index Bullish Fund (UUP)
Simplify Healthcare ETF (PINK)
Krane Shares Trust – Quadratic Deflation ETF (BNDD)
COMPANY NEWS & REPORTS
January was a relatively quite month with little news from our holdings.
KEY LEARNINGS THIS MONTH
When the macro environment deteriorates, it pays to act quickly – we failed to do this in the December / January period. It is possible that the worst is ahead of us, and we will need to act faster than we have. The reason why we were slow, is because we did not establish the portfolio make-up we desired, including how large an exposure to Goldilocks / Reflationary positions we were prepared to hold into, and through, a Deflationary period. This is something we will resolve in February.
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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