After 7 years and 9 months of transparent management, Mechelany Advisors’ MODEL PORTFOLIO QUINTUPLED in value, multiplying by 5 its initial investment.
Mechelany Advisors’ MODEL PORTFOLIO started on January 1st 2014, with an initial investment of $ 2’000’000 , and is now worth $ 10’224’000.
It has added in excess of USD 8’200’000 of performance to the initial investment in less than 8 years..
This represents at 23.26 % annual compound performance over 93 months.
We would like to thank here our great team for their invaluable individual and collective contribution. Great Job ! Thank You !
Based on 37 years of experience at managing Institutional Money, Ultra High Net Worth wealth and Hedge Funds, our investment philosophy has been built on two tenets :
1. DELIVERING ALPHA IS GREAT...
But REAL CREDIBILITY comes from demonstrating HOW THE PERFORMANCE IS ACHIEVED, and not simply from the performance metrics.
This is why we decided to launch the Mechelany Advisors’ MODEL PORTFOLIO in 2014 and to manage it in a FULLY TRANSPARENT way since then, publishing the fulness of its positions and the transactions on a DAILY BASIS on our Website.
We have been sometimes criticised for giving our readers too much value for free, but Bulding the credibility of our investment management process is far more valuable than any subscription revenue derived from publications.
Moreover, is investment managers are paid to make investment decisions, then they should have no issue with making these decisions transparently.
2. DELIVERING ALPHA IS THE ONLY END GAME...
The investment management industry is very much a game where most people prefer to be wrong with the pack rather than being right alone. The development of passive management and indexing is a testimony of that fact and the history of the financial markets is that investors ride bull markets, but suffer from bear markets alike.
At Mechelany Advisors, we see our role as riding bull passes and avoiding bear phases, based on exhaustive and comprehensive in-house analysis of value, sentiment, macro-economics and structural conditions.
We do not hesitate to invest where people do not want to go, and avoid, or even going short where people are crowding in on expensive momentum trades.
Mechelany Advisors MODEL PORTFOLIO is, by essence, a DIRECTIONAL LONG SHORT PORTFOLIO using only highly liquid listed securities worldwide, while respecting at all times institutional diversification and risk management constraints.
Each and every position we take is based on in-depth research, absolute value analysis and sentiment and flow of funds assessment.
We are not in the business of arbitraging relative value or using dangerous optional or derivative instruments to deliver alpha. We have been through enough crises and bear markets – 1987, 1990, 2000, 2003 and 2008 – to know that investment manias and market dislocations are the real performance killers.
Our first-hand experience of investing in Asia, China and Emerging Economies over the past 40 years, coupled with our in-depth experience of Public Governance and geo-political trends, a unique feature of our analytical process, makes us much more comfortable in building our portfolio based on promising future systemic trends rather than on past or ending momentum trends.
Last but not least, focusing on absolute value rather than riding highly dangerous liquidity-driven growth momentum investing enables us to tilt significantly the risk-reward ratio of our portfolio in our favour, as demonstrated by the behaviour of Chinese tech stocks in the past few months.
Today’s financial markets are the MOST DANGEROUS we have seen in 4 decades at managing money :
. Unorthodox and extreme monetary policies pursued by the world’s major central banks since 2008 have artificially tweaked interest rates and bond yields – the price of money and the backbone of the financial markets – keeping them at artificially low levels for more than a decade …
. As a result, bond markets – the largest financial asset class by size – and credit spreads – the measure of absolute risk – are STRUCTURALLY MIS-PRICED, making bonds dangerous as an asset class,
. The massive excess liquidity injected into the system by these Central Banks failed to trigger sustainable economic momentum, but flowed instead into the financial markets, triggering asset bubbles of unique proportions – cryptos -, investment manias – US tech and growth investing -, extreme overvaluation of equities – in the US and Europe – and crowding and massive participation through passive and indexed management as investors fearing of missing out have been riding the longest, and most artificial, bull market in history,
. Far more worrying, this excess liquidity, an endless bull market and the development of on-line trading platforms have led an entire generation of inexperienced young investors to enter the financial markets, speculating wildly through their regulated or unregulated platforms through options and esoteric tokens, with a Hold Over Dear Life belief that markets can only go up…
These are weak holders by definition and their staying power have never been tested as they have never lost money in their short investing life…
. In addition, the extreme and risky momentary policy bets made by the fED, the ECB and the Bank of Japan have had two other dangerous consequences :
. Corporations and Governments have been accumulating debt to unprecedented levels, enticed by abnormally low interest rates. The impact of higher rates in the future will have a devastating impact on their corporate profits and public finances, while questioning the basic justification for valuation extremes in equities through discounted cash-flows,
. Central Banks have triggered both a new commodity super-cycle and a new wage inflation cycle that they will find extremely difficult to contain, making higher interest rates in the future a certainty, not a probability.
We are nearing the tipping point of all those dynamics very soon, probably in 2022.
and the main consequence of the above is that ONLY ACTIVE MANAGERS and LONG SHORT MANAGERS will have the ability to protect investors’ assets and deliver alpha in coming years.
We are very close to seeing a major reversal in the infatuation of investors for indexed and passive management.
This is what we are all about at Mechelany Advisors.
A side note on structural geo-political trends
The emergence of China as the next economic superpower and the growing antagonism of the West against China, is not solely an economic and geo-political competition between super-powers …
It marks a considerable evolution in the world’s public governance systems and reflects the difference of efficiency of their respective systems …
Our Western democracies, as we know them, were born in 1776, as a rejection of the then-prevailing monarchies and empires. They have developed and dominated over the past two centuries through their economic efficiency, rather than through their political might – see the history of the demise of Soviet Union and Communist China –
But as we highlighted in many of our articles in the past, their success did not come from their public governance system, but from the efficiency of the governance of their private corporations.
Apple Inc, would not be the most valuable company in the world with a market cap exceeding the GDP of 95 % of the world’s nations if the owners of iPhones – their clients – had elected Donald Trump as CEO for 4 years instead of Steve Jobs or Tim Cook who stayed at the helm for decades.
What we are seeing today with the social and economic successes of countries like China, Singapore or the United Arab Emirates over the past 40 years is the implementation of a Public Governance that is modelled on the western’s private corporation’s governance, based on a stakeholders logic and qualified management rather than management chosen by the people.
What investors should be truly aware of is that what we are seeing today is an evolution from a “We the People” management to an efficiency management of Nations through this stakeholder and qualified management system.
And as was the case with the demise of the Soviet Union and all the collectivist systems, the economic and social efficiency of this new model of Public Governance is what will make them prevail in the future over the western democracies that are finding it extremely difficult to reform, invest and manage their pubic finances …
What China is doing in containing the excesses of its own society and private corporations at the moment, is EXACTLY what should be done in the West for the well-being of their populations and society.
The January 6th storming of the US Capitol fuelled by the unconstrained and overwhelming power of its social medias is there to testify of that reality.
Fear mongerers who predict a war between China and the USA have not yet grasped that in the globalised world of our digital era, wars, destruction and control of territory and populations bring no benefits and lead nowhere as testified by the failure of each and every military interventions of the USA outside of its borders since the 1970s. – See Afghanistan –
China knows full well that wars only lead to destruction and its 5’000 years history shows that its only concern is its own protection – See the Great Chinese Wall built form 700 BC to 1400 AD, or the British-Chinese opium wars and Japans’ invasion of Manchuria in the “Lost Century”.
China knows full well that the world domination in the 21st century will be the result of economic efficiency, not military efficiency, and America should remember its own history of the 20th century where their ascent to world domination came from their superior economic efficiency when the British Empire was destroyed by World Wars when America privileged isolationism.
Let’s hope that America will be sensible enough not to repeat the mistake made by the British Empire by confronting militarily the economic rise of Germany in 1914. That led to their loss of power to the US and to a Second World War that finally killed it.
All this to say that investment managers who do not understand China, its political system, its culture and its society are bound to underperform in the coming decade because they will miss the main drivers of growth; economic and social efficiency
MODEL PORTFOLIO 9th October 2021
+3.35 % Last Week
Our Model Portfolio increased by +3.35 % last week, outperforming again all equity benchmarks
+65.68 % Year to Date
Our Model Portfolio is now up +65.68 % Year-to Date, vastly outperforming each and every equity market, and even commodities apart from Natural Gas and Gasoline.
On a Year to Date basis, our Model Portfolio is also outperforming significantly the hedge fund world. The following table form AURUM summarises the average performances of the hedge fund space by strategy.
Hedge funds have delivered an average of +7.07 % Year to Date according to Aurum, with long equities being the best performing strategy with +9.98 %.
+ 405.65 % since inception on Jan 1st 2014
Our Model Portfolio has now crossed the USD 500 mark , multiplying the initial investment by 5, with a cumulative performance of +405.65 % since inception 93 months ago.
This represents a +23.23 % average performance per annum over the past 7.8 years
This represents almost 5x the performance of the MSCI World Index, 4x the performance of the S&P500 and 156 % more than the US Nasdaq over the period.
When compared to Hedge Funds, the following table from AURUM, going back to 1st January 2015 gives a sense of our outperformance over the Hedge Fund industry as a whole, their best years being 10.68 % in 2019 and 9.29 % in 2021.
Source : www.aurum.com
Our timing of the end of the September/ October Correction last week – See Bullish reversal – and our decision to cover all our short positions were timely and had a significant impact of our weekly performance.
As was our assessment that Chinese equities and Precious Metals were nearing a significant bottom.
Our weekly performance was fuelled by the strong rebound in Chinese stocks overall and some strong performances of our individual equities.
Commodities worked in our favour with strong moves up in Platinum and Palladium and an important reversal in Silver and Gold Miners as we predicted.
Our timing in shorting Natural Gas was good and we increased our Short position on Thursday. Natural Gas is up 235 % year-to-date but the move is due to temporary technical shortages and massive speculation in the futures market. Wladimir Putin has opened the door for more supply to help Europe and we see tensions easing from here.
The vertical acceleration is over and the downside significant. Note the explosion of the open interest in the December Future contract on the chart below.
Bonds also worked in our favour on our 6 % short position as yields kept going higher over the week. the TLT US ETF go 20year+ Government bond lost 2.39 % last week while corporate bonds are still holding up.
US Equities. Our portfolio was mixed with New Frontier Energy (NFE US ) rising by 23 % after a conference call with the CEO revealed that the company was very long Natural Gas going into the summer and is making handsome profits on its positions.
Take Two Interactive (TTWO US ) also gained almost 10 % as the company unveiled remastered versions of three classic Grand Theft Auto titles to be launched in before year-end.
We used the weakness in QuantunScape to re-instate our Long position at 22.5 after having sold it at 26.6 the week before, and that decision was also a positive contributor.
Conversely, Esperion Therapeutics ( ESPR US ) is still weighed down by investors skepticism about their ability to execute their growth plans. We stand ready to increase our position there.
We added EXTERRAN as a new position on Thrusday.and took profits on our Energy ETFS XLE and PSCE.
Europe. European Stocks had a role coaster week, with sharp falls at the beginning of the week and strong rebound later. Commerzbank and EDF were strong positive contributor and we were a tad early in re-establishing our GRIFOLS Position.
Japan. With the Delta wave having ebbed and the majority of the population now fully vaccinated, we expect a strong rebound in Japanese domestic demand over the coming months. But the inflation concerns that hang over other major developed economies won’t materialise there and the Bank of Japan will keep policy loose for the foreseeable future.
As a result, we took advantage of the politically induced volatility to re-instate our Future position on the Nikkei and were stopped out of our Sumitomo Dai Nippon Pharmaceuticals position.
Chinese H-Shares. Our core portfolio exposure was sharply up last week, with mots of our holdings in positive territory and outperforming the HSCEI Index. Tech stocks – Netease, Tencent, Ali Baba, BiliiBili and Baidu – all rose strongly, Petrochina added 10 % and our life insurance positions rose strongly sending a significant BUY signal. Our FT50 China ETF also rose strongly.
Over the week, we added banks, increased our position in Ali Baba and added Ping Ang Insurance on Friday.
We are now at 61.8 % exposure to Chinese H-Shares and the market has bottomed out on a cyclical basis. We see strong rally to unfold in the last two months of the year and the beginning of 2022.
Chinese A-shares and US Listed Shares. Our domestic portfolio did very well with Luzhou Liaobao rising by 20 % , and Luxshare and our global CSI300 ETZF rising by 5 % on the week.
As expected and predicted, short covering has started in IQIYI and the stock was up 12 % on the week.
Short US equities. We covered almost all our short last week and were right in doing so. We are only left with Netflix and TESLA. As we are entering the Q3 reporting season, we see investors bidding up the stocks ahead of the results and stand ready to sell them short again just before their earnings. Regardless of the results, mots of te good news is priced in but sharp moves could happen on disappointment.
Crypto-currencies. We made back on our long Bitcoins what we lost by not having our stop loss on ETHERS executed. WE took our profits on Friday and are OUT of the spare altogether. The crypto world has become a gigantic casino that is now reaching a size that poses a major systemic risk to the financial markets. We will detail this point further in our weekly Monitor .
Currencies. We increased our net exposure to the EUR to 16 % of the portfolio last week. We see the US dollar topping out soon, a positive development for both the EUR and Precious metals.
DISCLAIMER Mechelany Advisors FZ-LLC or www.mechelanyadvisors.com, is not a registered investment advisor, nor a capital management firm or broker-dealer and does not purport to tell or suggest which securities customers should buy or sell for themselves. Mechelany Advisors FZ-LLC operates as a private advisory and research company where we provide consulting services to pension funds, investments funds and private clients. Our analyses and conclusions are ours and they only clarify and highlight the investment rationale behind our own investment decisions. The analysts and employees or affiliates of Company may - and usually do - hold positions in the stocks or industries discussed here. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. You understand and acknowledge that there is a very high degree of risk involved in trading securities. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns. The indicators, strategies, columns, articles and all other features of Company’s products are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company’s website are for educational purposes only. Such examples are not solicitations of any order to buy or sell securities, commodities, investment products or engage into any kind of trading activities. Accordingly, you should not rely solely on the Information provided in making any investment decision. Rather, you should use the Information provided only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment. By navigating on our website or remaining on our subscription lists, you accept our terms and conditions and discharge us irrevocably form all responsibility.