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BlackPearl Masters Fund Newsletter February 2019

The BlackPearl Masters Fund finished February up +2.35%. The fund benefited from a number of strong performing strategies during the month. The stand out strategy was our long short Australia focused market neutral strategy which had an exceptionally strong moth and finished up just under +11%. The performance mainly came from long positions which benefited from strong earnings results which were announced during the February Australian earnings season. The strategy was on the right side of many strong earnings reports which beat market expectations, with strong gains generated from both the technology and mining sectors.

Another positive strategy for the month was our long short variable beta strategy which generated a mid-single digit positive return. Once again it was the strong earnings results across the strategy’s positions that drove the portfolios gains with performance being generated across a broad basket of stocks in Australian and overseas markets. In addition, both our long short high conviction strategy and long short global value strategy generated strong performance in February.

Strategies which detracted for the month included our long short macro strategy which in hindsight was positioned to short for the month a stance driven by concerns around the housing slowdown, pending federal election and Chinese economic weakness. Additionally, our volatility strategy was down as market volatility continued to subside as a result of the broader equity market continued recovery.

At a stock specific level, the fund benefited from gains across a broad range of companies which reported strong earnings results and, in many cases, provided positive guidance. Seven Group finished the month up +23%. Seven Group is a diversified conglomerate which owns numerous businesses in various industries and is majority owned by Kerry Stokes one of Australia’s richest men.

The group consists of Westrac Australia which is the authorised dealer of caterpillar machinery in New South Wales, Australia Capital Territory and Western Australia. WesTrac China, which is the authorized Caterpillar dealer in the North Eastern China provinces and the municipalities of Beijing and Tianjin. AllightSykes, which operates in the manufacture, assembly, sales and support of lighting, power generation and dewatering equipment, as well as distribution of Perkins engines. As well stakes in Coates Hire Australia’s largest equipment rental company, Seven West Media owner of Channel Seven, listed equity investments and property investments.

In February Seven Group recorded group EBIT (earnings before interest and tax) of $365m which was up 68% on the previous half and was driven by strong revenue growth in all businesses as well as improved profit margins. The company’s trading revenue was up +45% to $2 billion dollar while its share of it Associate profits grew by 56%.

With earnings season coming to completion towards the end of the month, many of the fund’s strategies took advantage of some of the strong moves of individual positions to lock in profits and reduce net exposure.


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