BlueOrange Asset Management September Results
Our weighted average return in September was +4.74%. Since 2015, we have generated a net return of +46.16%.
In terms of investment strategy performance, our weighted average net returns for September were (a) +0.03% for conservative strategies, (b) +1.70% for balanced strategies, and (c) +9.37% for aggressive strategies.
September marked the 10th anniversary of the collapse of Lehman Brothers. Despite considerable media mention of this painful theme, US equities continued to trade higher and gained 0.59% in September, posting an impressive gain of 7.7% for the third quarter of this year. In terms of economic data, US consumer confidence hit its highest level since 2000 (around the peak of the ‘dot.com’ bubble), while US small business confidence hit its highest level since the National Federation of Independent Businesses began its survey in 1974. Moreover, monthly average unemployment figures hit their lowest level since 1969 – the year the US Apollo Mission successfully landed on the Moon.
In light of these strong US economic data, the US Fed decided to raise rates in September for the third time this year, bringing the target range for the federal funds rate to 2.25%. This resulted in continued weakness in US treasury prices (US 10 Year Notes were -1.46% in September), and the bond market in general. At the beginning of the year, the market was pricing a 20% chance of three rate hikes in 2018. The market was wrong and bond prices continue to weaken. Resultantly, the US 10 Year Treasury Note yield is at its highest level since 2011. US 30 Year Treasury Bond yields have risen as well, somewhat dimming talk of inverted bond yields and their tendency to signal recessions (what happen to all of that chatter?). The US economy is very strong, and in this context, rising bond yields (which mean falling bond prices) are completely normal. While such a dynamic results in mark-to-market losses for the holders of longer duration bonds, it also means higher yields for new buyers on bonds. Overall, the Barclays US Aggregate Bond Index was -0.55% last month.
In the commodities space, Brent Oil gained +6.85% and we finally saw a rally in base metals as copper gained +5.89% and zinc gained +7.52%. A continued standout in the commodities space was Vanadium, whose price in Europe rose 19% in September alone for a stunning year-to-date increase of 152%.
We have mentioned our top holding Largo Resources (which is one of the only pure plays on vanadium) in our past two monthly commentaries. We are again very pleased to report that Largo shares rose 32.48% in September. Although we have been adjusting our portfolio exposures, we continue to hold a strong conviction in our investment thesis. This is how you make money in capital markets – by working hard to uncover compelling ideas before the market discovers them, and then have the underlying conviction to hold on until something fundamentally changes. Based on our calculations of publically available data, Largo is set to deliver phenomenal results for Q3, while reducing financing costs at a rapid rate. We also anticipate that at least one major investment bank will initiate coverage on Largo before the end of the year, and that will attract even more positive attention.
In September, we took profits on our US equity index funds. We also continued to add incrementally to our Emerging Markets and European holdings. Time will tell if this rotation was a shrewd maneuver. However, if I was an American businessperson with soaring confidence, record earnings, difficulty finding domestic workers, and a pocket full of valuable US dollars, I just might be tempted to look at buying some world-class businesses on the cheap (Europe) and placing a few bets on the dynamic, underpriced growth that is going on in the developing world. Oh, I forgot to mention that wages in the US were growing at their fastest pace in the US since 2009…
On behalf of our Client Portfolio Management team, I thank you for your continued trust and support!
FULL DISCLOSURE: Please note that the opinions expressed in this blog should in no way be considered as investment advice or a solicitation to buy or sell securities.
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