For the month of November, the BlackPearl Masters fund finished slightly lower at -0.22%. During the month we spent time meeting and speaking with both new and existing strategy managers. As a result of these meetings we’re excited to be adding a new strategy to the portfolio. The long short variable beta strategy is focused on small to mid-cap Australian equities and is managed by an experienced team with a very strong track record of delivering alpha.
Rather than using short positions to hedge as some of our other strategies do and aiming to generate relative performance the long short small to mid-cap strategy is focused on generating positive absolute performance on both long and short positions. We are investing at a time where the strategy only has a small amount of capital under management which should allow it to be more nimble in trading positions and we like the fact that the managers have a very significant portion of their own net wealth invested alongside us.
As a result we expect the strategy should contribute strong returns to the fund but may come with some volatility during times of market stress and while we are somewhat cautious on the market should the monetary policy environment continue to stay accommodative, small to midcap strategies should perform well. We plan to continue to add to this strategy over the next few months on any pull backs.
During the month the fund saw good gains from both local and value stocks while strategies that were exposed to growth stocks were weaker. The standout strategy was the global long short value strategy which benefited from a position in Xero as it reported a strong half year result and announced that it had managed to increase its client base to more than 2 million globally. A turnaround value stock, General Electric, which has been a contrarian long position also performed well as it recovered after a short campaign that our manager views to have little merit failed to push the stock lower.
The fund’s market neutral strategy generated some good gains shorting the banks as the sector fell mid-single digits during the month due to expected weaker earnings, reduced dividends and heightened concerns around governance. The strategy also benefited from the listing of Alibaba in Hong Kong which was the largest listing in 2019 with the stock finishing up +12%.
A detractor for the month was Smart Group, which was held by both the market neutral strategy and the long short macro strategy. A larger block sale during the month by a significant shareholder at a discount and the announcement that the company’s CEO would retire after 19 years in the job caused the stock to sell off. While the company initially maintained guidance, it has since announced that its insurance partner will make changes to the terms of the insurance products sold by its representatives which the company now expects will reduce its earnings by $4 million in FY2020.
On the commodities front the fund benefited from exposure to copper stocks with good moves coming from positions in Freeport McMoran and Lunding Mining. Both stocks have continued to trade higher in December and our manager see at least a further 50% upside in both of these names.
Looking forward to 2020 we have identified a number of strategies that we believe can add value to the fund and continue to provide returns that have a low correlation to the broader equity market. We expect to complete our due diligence on these strategies early in the new year and add exposure to the fund on any pull backs.