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
Last week was a bumper week for our MODEL PORTFOLIO as it rose +8.70 % on the week to reach a +59.02 % increase year to date in 2021, our best year ever by far. Its NAV stands at 485.35, a new record high, having almost quadrupled the value of the portfolio since inception.
Our MODEL PORTFOLIO is now running at an IRR of + 23.45 % over the past 7.5 years, having delivered a 385 % cumulative performance, 3.8 times the performance off the SP500 and 140 % more than the US Nasdaq.
Last week’s great performance came from four main factors :
. Our largest individual stock position ( 10 % of our portfolio ) China Zheng tong Automobile rose 60 % last week, delivering a significant boost to our portfolio. This is the illustration of the benefits of patience as we started investing into the company, the third largest luxury auto dealer in China, in 2019 based on valuation and strong underlying demand for luxury cars in China. In 2020, the Company’s business was hit by COVID-19 and the management played games with its Auto Financing arm, Shanghai Dong Zheng to support its network of dealerships, leading to a change of management and controlling shareholding. All along the troubles, we actually increased our position gradually, sitting on unrealised losses that amounted to 50 % of the position at one point.
In the past few weeks, the market seems to have taken notice of the fact that the troubles of the company are over and the strong trends in luxury car selling in China has resumed with a vengeance with a 22.22 %increase in the first half of 2021 and a strong showing of German brands and EV.
Last week’s 60 % increase in the stock price of CHINA ZHENG TONG and 30 % rise in its financing subsidiary SHANGHAI DONZ ZHENG are clearly a re-rating ahead of the publication of the companies’ annual results in August 2021.
We have taken advantage of the strong rise to take some profits and lighten up and our positions have now come down to 5 % and 1.2 % of the portfolio respectively.
. Strong rally in Chinese H-Shares. H-Shares are by far our largest exposure as the cheapest market around and as expected and highlighted, we had reached levels that made us increase our exposure to the market and the financial sector last week.
In fact, Asia Pacific and Hong Kong shares were the only positive markets last week with a 2.4 % rise and our 47 % exposure to the HSCEI helped our performance tremendously.
Besides our Auto dealers, some of our strategic positions such as China Power International rose +8 %, China Telecom +6 %, China Merchant Ports +4 % and China Life added 2.5 %.
. US Treasury Bonds were strong. We have 48 % of the portfolio invested in US Treasuries with an average duration of 20 year and they rose by an average of +1.14 % with the yield on 10 year bonds falling to 1.29 %. We expect yields to fall to between 1.08 and 1.15 % before the bear trend resumes. We shall take our profits then.
. US tech. stocks, Meme stocks and Cryptocurrencies fell over the week. We are finally getting the correction we have been expecting and warning about with significant reversals in the major tech stocks, indexes and volatility indexes.
Save for Apple and Microsoft which are still holding the indexes higher, almost all our short positions and long volatility delivered positive contributions with semiconductors NVIDIA and AMD falling sharply, the Meme stocks MAC and GME falling by 30 % and Cryptos unable to hold their grounds.
NVIDIA ‘s fall was particularly significant and our decision to sell the shares short at US$ 813 proved particularly timely.
As was our decision to sell AMC Entertainment at US$71. We are now making 40 % profits on this position but see no reason to rush to take our profits there yet.
We traded ETHEREUM successfully , shorting the Grayscale trust at 22.68 $ the week before. They fell by 22 % last week and we expect both Bitcoins and ETHER to break down further in the coming weeks.
Finally, our MODEL PORTFOLIO was also helped by our 2’000’000 short EUR position as the US dollar keeps rising .
Last week’s results published by the US Banking sector demonstrated that Jeremy Powell’s monetary policy is a total and complete failure, despite his claims in Congress.
Banks results in Q2 were subdued to say the least and far worse that anticipated by analysts.
The main culprit was a general 8 % decline in loans, illustrating the fact that neither consumers nor corporations are willing to borrow more regardless of the level of interest rates. Individuals are happy to pay down their credit card balances as soon as they can and corporations prefer to borrow long term at ridiculous rates rather than run Short term debt or debit balances.
As we have been saying all along. the current problem is not monetary but a problem of confidence due to the COVID uncertainty and the only thing Powell is achieving through his dangerous monetary policies is fuelling asset bubbles on one hand and triggering inflation – and sustainable inflation – on the other.
Last week’s inflation numbers were horrible…
. Hourly earnings are up +3.6 % despite unemployment at 5.9 % ( worse then expected)
. The US CPI was at +5.4 % the highest in decades and much worse than expected
. The US PPI came out at+7.3 % – yes 7.3 % – the worst ever recorded since the 1980s
At those levels and with this momentum, despite the base effect of June 2020, the final appraisal of the Fed’s job is not extremely satisfactory. Unemployment remains high, employment costs are rising fast, input costs are ring fast and corporations are passing the prices increases to consumers in a big way.
Coming back to equity markets, most markets are finally rolling over, from Europe to Asia to the US and the lack of breadth and participation in the US is worrying.
We started the week by buy back Shanghai Dong Zheng and adding Sinotruck to our portfolio, then started taking profits gradually in China Zheng Tong. we added insurance, financials and banks in H-listed shares, increased our short on the US indexes, Shorted Oil and Corn again and kept on taking profits in China Zheng Tong all along.
Our portfolio remains balanced in terms of global exposure with a significant tilt in favour of Chinese H-Shores and Short US Technology stocks. We are clearly Long US dollars and Hong Kong Dollars
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