Global Return Asset Management’s commentary on yesterday’s selloff for the month of February 2020.
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Strong Performance Despite Yesterday’s Selloff
I’m happy to report that despite yesterday’s selloff, our portfolio outperformed all major market indexes.
Even when removing the positive contribution from our hedges and cash balance, leaving only the equities portion of our portfolio, we still outperformed major market indexes.
Yes, our portfolio declined, but not with the same magnitude, and we even took the opportunity to add to an existing position.
The market’s selloff is due to fears that the coronavirus will have a greater than expected impact on consumer spending and thus corporate earnings. At present, companies that generate a significant amount of their revenue from Asian markets face the greatest risk.
Within our portfolio, only 6 of 18 holdings generate revenue from Asian markets.1 When combining the total revenue of these 6 companies, only 6.4% of their revenue comes from Asian markets.2 Moreover, when this revenue is adjusted to each holding’s percentage of our net assets, our portfolio’s total revenue exposure to Asian markets is below 2%.
As it relates to the U.S. economy, I don’t see any immediate threat from the coronavirus; however, because 68% of our GDP comes from personal consumption, should we have an outbreak like what’s occurring in China, our economy would likely contract. In preparation for this, I’ve written a brief report on the industries and sub-industries that would be impacted by a U.S. outbreak. Please contact me if you’d like to receive a copy.
Going forward, we’re not adjusting our portfolio to profit from the coronavirus, nor are we reducing or exiting any of our positions because of the coronavirus. To the contrary, I intend on sticking with our strategy, which includes buying under-valued stocks.
In conclusion, thankfully our portfolio was well-situated for yesterday’s selloff. And I’m happy to have had the opportunity to add to an existing position; or said differently, I was able to buy more stock with less money!
1 Asian markets include regions designated in corporate filings as China, Hong Kong, Other Asia and Asia Pacific.
2 Calculated using reported trailing twelve-month revenue. Data as-of January 31, 2020.
As always, please feel free to contact me with any questions you may have about our technology, risk management or how we invest.