BlackPearl Masters Fund Newsletter March 2019

The BlackPearl Masters Fund finished the month close to even in April at -0.05%. Six of the funds 9 strategies were positive.

The major positive contributor to the fund’s performance was our value Australian focused long short strategy which benefited from a number of value positions bouncing back in the month such as JB Hi-Fi, +14.97% Super Retail Group +8.36% and Unibal +2.75%

Interestingly the fund has now managed to generate positive performance on JB-HI FI on both the long and the short side. One of our strategies was previously short the stock based on the view that the company would come under competitive pressure from the entrance of Amazon into the Australian market. Since the 7th of September 2016 to the 4th of January 2019 JB Hi-FI stock had sold off circa 30%.

It is not unusual for the fund to benefit from one of the strategy’s short position in a stock that is established as a result of an overvaluation or an expected event only for another strategy to purchase the stock on the long side as it once again becomes undervalued by the market.

Another positive contributor the fund was our market neutral strategy which generated strong alpha on the long book which was partially offset by losses on the short book. The strategy has had a very strong start to the year generating just under +17% in first quarter of 2019.

With market volatility dropping off again in March and the VIX index down 7% to 13.71 our volatility strategy was a drag on performance. This is to be expected though as the return profile of the volatility strategy is that it will tend either be up slightly or down slightly during times when the market is calm but should be able to generate strong positive performance during times of market stress. As a result, we continue to invest in the volatility strategy and view it as a type of portfolio insurance.

During March one of the big commodity price moves occurred in uranium with prices falling 10%. The fall appears to be based on a number of Japanese trading houses needing to square up their books before the end of their financial year. However, uranium spot price have already bounced back 3-4% in April and are expected to continue to increase as utility buyers enter the market.

One of the main reasons why our resources strategy has long uranium exposure is the upcoming Section 232 results in the US which are expected to be a significant catalyst for the uranium market. The US currently imports around 99% of its uranium, Section 232 is expected to include a quota which will reserve 25% of the domestic market for US mined uranium. This in turn should lead to a significant shift in the global cost curve and potentially attractive investment returns.