Mechelany Advisors’ MODEL PORTFOLIO has been running in a fully transparent way since January 1st 2014. Its Purpose is to implement the conclusions of our research analytical process in a portfolio managed using institutional liquidity, diversification, risk management and asset allocation processes. In our TRANSACTION UPDATES we keep our reader informed in real time of the transactions in our MODEL PORTFOLIO
In a week of volatile trading where global equities edged marginally higher, Mechelany Advisors’ MODEL PORTFOLIO recorded a new all-time high, adding +2.35 % on the week for a +45.54 % performance year-to-date in 2021.
Its Net Asset Value has reached 444.20, or USD 8’891’000 against a starting capital of USD 2’000’000 on Jan 1st 2014, a performance of +344 % over 89 months of management and an IRR of +22.27 % per annum.
Our lead over the world indexes is increasing, with 4.27x the performance of the MSCI World Equity Index , 3.3x the performance of the SP500, and 113 % more performance than the US Nasdaq over the period.
Interestingly enough, our 2021 performance has been achieved without major directional bets and a balanced risk allocation, but our active management and focus on valuations in these irrational and volatile markets has been rewarding.
Meme stocks took center stage again last week with AMC Entertainment going up 100 % in one day, leading us to short the stock at $71 for the first time before the bell on Thursday. AMC has a negative net equity but still managed to sell 238 million and 520 million Dollars worth of new equity in a single week at a US$ 24 Billion valuation.
If these irrational patterns are not the best sign that the US equity market is in a free-wheeling speculative bubble, we do not know what is. But for us, even if these are small positions, these active trading opportunities are extremely rewarding.
Patience is also rewarded
For two yeas now we have been investing in a Chinese Luxury Auto dealer China Zheng Tong and its auto leasing subsidiary Shanghai Dong Zheng. The company had a hard time during COVID -19 and mis-management led to a sharp depreciation of the stock.
the negative issus are now over and we are profitable on the Leasing company position, but we kept China Zheng Tong as one of our largest individual equity holding all this time.
Last week the stock jumped 33 % on very high volume as investors are finally taking the measure of the undervaluation of the company and its potential.
As the chart below shows, this is only the beginning of a new upward trend and re-rating of the company’s stock
All three main US stock indexes gained ground Friday to end a roller-coaster week higher, helped by technology shares, as weaker-than-expected jobs growth eased worries about an overheating economy.
The Dow Jones and the S&P 500 advanced about 0.7% and 0.6%, respectively, on the week for their second straight week of gains. The tech-heavy Nasdaq gained 0.5% this week for its third winning week in a row.
The US economy added 559K jobs in May, above an upwardly revised 278K in April but well below market forecasts of 650K.
Concerns that a robust economic rebound could lead to a prolonged period of inflation and prompt the Fed to consider paring back its crisis level support have spooked investors away from equities earlier this week.
However, this latest reading of the job market and weak US factory orders cemented the Fed’s narrative that the central bank will continue to remain ultra-accommodative until the economy has further recovered.
US factory orders shrank 0.6 percent month-over-month in April of 2021, the first decline in 12 months and more than market forecasts of a 0.2 percent fall.
Tesla was down another 5 % last week and our short US tech portfolio was mixed. However, our long US special situations was a positive contributor with QuantumScape, Intercept Pharma and Echostar all delivering positive performances
This large portion of our asset allocation was a positive contributor last week as bond yields plunged on the release of the US job data.
European stocks gained ground on Friday to end the week at record levels, with the benchmark DAX finishing above 15,700 for the first time, on growing expectations that the eurozone economy will begin rebounding at a faster pace in coming months as vaccination drives gather pace.
Data earlier this week showing a solid expansion in European factory activity in May offered more evidence that the block could be recovering from a double-dip recession. European tourists are preparing their holidays and the 2010 Greek crisis is now well over with Greek bonds now trading on par with other European creditors.
Our European Portfolio did well last week with Carrefour, Valneva and Commerzbank shining.
Last week we re-instated our strategic position in Mitsubishi Motors and Mitsubishi Heavy after their extended consolidation.
Our Chinese H-shares portfolio was globally mixed but still a positive contributor thanks to the sharp breakout in China Zheng Tong and the strong performances of Geely Automotive ( up 13 % ) as the Chinese EV maker and owner of Volvo and stakeholder in Daimler is gaining market share, the strong performance of our two oil stocks Petrochina and CNOOC and a breakout in Tongda Group ( 698 HK ), the electronic and appliance casing maker.
Our US and domestic Chinese stocks was marginally negative. We see the clampdown on the Chinese giants coming to an end and the newly updated list of US sanctions has voluntarily excluded most Chinese technology companies. Our ETF on the CSI300 worked against us but Ali Baba, automobile, pharmaceuticals and precision makers did well.
Over the past few weeks we have been taking our profits on Precious metals and we did well
Gold rose more than 1% to around $1,890 an ounce on Friday, rebounding from an over 2-1/2-week low of $1,859 hit earlier in the session, in reaction to weaker-than-expected US jobs growth, which also pushed the dollar and Treasury yields sharply lower. The precious metal has played a crucial role as an inflation-hedging asset as investors moved to price in a roaring comeback for the US economy and increased inflation. Still, the precious metal dropped approximately 0.6% this week, its largest weekly decline since March.
Crude oil futures extended the weekly gain to almost 5% on Friday to trade above $69.4 a barrel for the first time since October 2018 and following a 4.3% gain in the previous week amid signs of strong post-pandemic economic recovery.
On the supply side, API reported a fall of 5.36 million barrels in US stockpiles last week and EIA data showed a bigger-than-expected 5.08 million drop. Meanwhile, the Saudi Arabian energy minister said it would be premature to talk about potential overheating in the global oil market before seeing higher demand. Early this week, OPEC+ agreed to gradually ease supply curbs through July, signalling the ongoing strengthening of market fundamentals.
We cut our short positions on oil at a loss last week.
On Friday, we shorted Bitcoins and Ethers again as cryptos are failing to make significant headways after their massive breakdown. Elon Musk seems to have abandoned Bitcoins if his tweets are to be believed and it will be interesting to see in July if Tesla still holds its 1.5 Billion investment in the main crypto.
On a more global note, one year after the through of the pandemic, the virus seems to be receding everywhere apart from Asia and the massive vaccination effort seems to bearing fruits.
The appearance of multiple variants of the virus and more and more scientific data are re-opening the debate about the human or natural origin of the virus and, for the record, we take this opportunity to point to the article we wrote in February 2020 about the possibility of its human origin (see NORTH KOREAN FLU )
The strong momentum of the economic rebound is naturally ebbing even if the hospitality and transportation industries are catching up.
Speculation, inflation and commodity prices remain a significant issue and we expect the FED to start changing its language in a not too-distant future.
The following snapshot give a sense of the impact of COVID-19 on the world’s largest economies
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