For all the Barron’s 2018 Roundtable articles click here.
Q2 Letter: Baupost won big in Q2 with PG&E, eBay, Liberty Global
Seth Klarman's Baupost recorded "strong" gains for the second quarter, although precise numbers were not included in the July 23 letter to investors, which was reviewed by ValueWalk. Klarman said that during the first quarter, they were "substantial purchasers of securities," while during the second, they were "significant net sellers" due to the strong rally. Read More
Energy Select Sector SPDR (XLE) $77.87 ($74.97 when published)
- An exchange-traded fund that invests in energy and has underperformed the S&P 500 by something like 100% in recent years. That has stopped with the price of oil no longer declining. It is unlikely that you are going to have a bear market in oil.
- XLE ETF strikes me as a good way to also get some exposure to the stock market. The relative performance of the XLE versus the S&P 500 has turned positive recently, and it is now above its 200-day moving average. I like that as a way of investing in this commodity idea.
Tortoise MLP (NTG) $20.36 ($18.78 when published)
- An income vehicle that has a lower risk profile
- What is interesting as a bond-surrogate investment is master limited partnerships, which don’t need oil to go up.
- You just don’t want it to go back down to $20, so you don’t worry about a bankruptcy situation. MLPs have tremendously underperformed the XLE.
- NTG has about a $1 billion market cap. It has a sister fund, which owns almost exactly the same assets, called Tortoise Energy Infrastructure [TYG].
- I chose NTG because it is a little bit cheaper. The yield on NTG is almost 9%, and if you agree with this underlying thesis, that you aren’t looking at tanking oil prices but reasonably strong commodities broadly, this is a good way of getting income.
- It is 32% leveraged now, according to the fund website. MLPs have been on a bumpy ride. They’re risky, so you want to make sure you buy them at the right time.
- This is interesting as a bond proxy because if yields go up, it is likely that this commodity thesis is playing out.
PowerShares Senior Loan Portfolio (BKLN) $23.15 ($23.10 when published)
- For those who want income and are worried about rising interest rates, and who might want to benefit from Libor going up.
- It invests in bank loans, which are senior in the capital structure. Bank loans are illiquid, but BKLN is an ETF, so it is easy for an individual investor to buy.
- Libor has been going up, so the fund yields 4%, net of fees. When Libor goes up now, it isn’t like a couple of years ago, when Libor would go up and you wouldn’t get a dividend increase.
- For investors who want low volatility based on interest rates, and yet a yield that’s nearly double that of a 10-year Treasury, BKLN is OK.
- One of the safer ways to get a decent yield in the fixed-income market.
iShares MSCI Brazil (EWZ) $43.61 ($42.84 when published)
- Is risky, but it is the best play on the commodity trend without being a commodity fund.
- It has roughly doubled off the bottom, as have emerging markets broadly. But as a portfolio holding, it is motivated by my commodity thesis.
- It is incredibly repetitive historically that commodities rally late-cycle. In fact, every recession in the U.S. since 1970 has been preceded by a massive commodity rally. The best way to play where we are in an economic cycle is through commodities.
WisdomTree Japan Hedged Equity (DXJ) $63.22 ($61.63 when published)
- Another market I recommended last year also shows a tremendous breakout. That is the Nikkei. I don’t have a great understanding as to why it is doing so well lately. There hasn’t been much currency movement.
- It was underperforming for the first half of the year. It’s got momentum now, and I could include it as a recommendation, as well, because the [Bank of Japan] is going to continue quantitative easing, while other central banks are doing less.
- The Japanese economy has finally improved and is growing again, and [the stock market] is cheaper than the U.S.
Article by Brian Langis