John Burbank’s Passport Global Fund netted a +5.9 percent return in the first quarter. As of March 31, the total fund assets were $1.2 billion while the firm wide assets amounted to $3.7 billion.

John Burbank

John Burbank Joins the short Yen Bandwagon

The big news from John Burbank is that as the Q2 kicked off, the fund expanded its short position in yen (that was added in Q1) thus increasing its risk exposure but keeping it within Passport’s maximum risk range. Burbank’s short in Japanese currency is worth $350 million notional, which is quite a sizeable position for a fund that has mostly focused on equity assets.

Like other investors, John Burbank also thinks that the next phase of yen weakening for Japanese economy will trigger when domestic investors start investing in foreign assets and move away for traditional fixed income like JGB’s. This shift of focus from domestic institutions will pressure yen into another slide.

The hedge fund is closely watching the volatility shift in JGB’s to judge how Japan’s easing experiment will play out, Burbank takes the volatility as a recognized risk to funds that are investing in the Japanese sovereign bonds.

Passport’s quarterly letter does a long comparison on how growth cycles and recessions in emerging markets and developed countries complemented or exacerbated one another. Passport Global itself has been an EM focused fund, a strategy that has done well for the fund until the end of 2010. Now that S&P 500 is in overdrive, there are some changes in the fund’s perceptions that are noted.

According to Burbank’s thesis, the emerging markets will grow slowly but at the same time a  wealthy consumer class will emerge that will increase demand of high quality products from Western companies. Burbank thinks that US companies are in the best position to capture the forthcoming demand. In that regard, the fund has positioned itself to invest in energy companies and those with innovative and highly accomplished management.

Burbank shares his thesis on Lanxess AG (ETR:LXS) (FRA:LXS), a German rubber and plastic manufacturer. Burbank expects the company to grow out of the slump caused by slow sales of tire components worldwide, by the second half of this year.

Passport is still bullish on Saudi Arabia, which makes up 18 percent of the total fund assets. The fund is long energy and pipeline companies and like many other is bearish on base and precious metal miners. The fund’s major long holding are in Cytec Industries Inc (NYSE:CYT), Mcgraw-Hill Companies Inc (NYSE:MHP), VIVUS, Inc. (NASDAQ:VVUS), Al-Tayyar Travel Group and Etihad-Etisalat.