It’s safe to say that notwithstanding a small drawdown in equity at the end of the quarter, that we are very pleased with the return generated in the portfolio during the period, especially against our benchmark some 9 months into the funds life now.
As with our Global Macro account, the positioning of the fund being long of gold miners right across the market capitalisation spectrum (with the GDX ETF at the core), together with some modest gearing, worked exceptionally well and indeed driving us back through our high water mark as the performance chart shows.
Another particularly positive contributor to the outsized returns was our position in the refocused Nigerian oil producer – Heritage Oil, and where the stock price rose by over 70% during the period. This was a prime example of how accumulating fundamentally sound companies on dips and during periods of extreme negative sentiment, applying measured leverage and being patient is, in our opinion, the only real way to outperform over the medium term.
Clients will notice that we have refocused the fund from being heavily overweight the gold mining spectrum to an increased weighting in Oil E&P plays, in particular the smaller caps. This area of the market place has been in a bear market for over 2 years now and, if the cycle plays out as typical of the past, we are likely now nearing the end. The rate of descent of many of the stock prices within this sector has indeed begun to slow in recent weeks and with a fundamental backdrop of heavy cash backing for most of our picks, we anticipate a re-rating on a portfolio basis (ie some will rise, some will fall but overall, the aggregate equity we expect to increase).
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