BlackPearl Masters Fund Newsletter May 2019

In May the BlackPearl Masters Fund finished the month up +0.72%. May saw global equities sell off with the S&P500 down circa -7% while the Australian market managed to buck the trend on the back of th

e Coalition winning the Federal election, which was cheered by investors.

At a strategy level the fund benefited from an increase in global volatility with our volatility strategy gaining just under 3% for the month. The strategy benefited from its net long exposure to the VIX which finished the month up +42% at 18.7.

The fund’s macro long short strategy also generated strong performance on the back of its short position in Tesla with the stock continuing its fall during the month. The macro strategy also benefited from a short position in Technology One which fell sharply in May. The Enterprise software company announced its half year results which were strong but provided guidance below market expectation which caused the stock price to fall from a valuation that was arguably set for perfection.

The macro strategy also initiated a short position in Uber the company responsible for the popular ride sharing app. Uber has a market capitalization of $71.5 billion, is losing $1 billion per quarter, operates in a competitive environment, has not clear competitive advantage or clear path to profitability.

Our long short market neutral strategy also generated positive returns for the month with good returns being generated across a number of individual positions including Xero, Fortescue Metals and Syrah Resources which was up on the back of an upbeat annual general meeting. On the short side positions in a number of retail companies detracted as the stocks rose on the back of positive sentiment based on expected interest rate cuts. However, many of these stocks continue to have structural issues and we believe are likely to generate positive performance for the fund in coming months.

While our performance was positive in May it would have been significantly better had it not been for a weak performance of our Global natural resource strategy which has been holding large exposure to oil stocks. Oil posted its worst May performance in seven year as global trade tensions escalated which reduced the outlook for energy growth.

While oil prices can be volatile in the short term, we believe many of the positions held by the strategy especially single commodity producers are mispriced against more diversified producers and represent compelling value. Many of these companies have quality assets and have strategic value to potential acquirers from either a free cashflow basis or from a reserve growth profile.