In October the BlackPearl Masters Fund finished the month at -0.50%. Year to date the fund is up +6.57%. During the month 4 strategies finished higher while 4 were lower. The strongest strategies were the global value long short strategy and the variable beta long short strategy while the weakest were the market neutral strategy and the global resource strategy.
The global long short strategy gains were diverse across sectors however the strategy did reduce its exposure to oil and gas short positions a sector which it has done very well in the past but now lacks the same opportunities given that many of the short positions have now gone to zero or devalued to market caps that no longer represent the same upside for potential profits.
The strategies manager also visited Europe and England and confirmed their belief that valuations there are much more sensible relative to North America which is continuing to get more expensive. The benefit of course of a more expensive US market for a long short fund like ours is more short opportunities in the US going forward.
The variable beta long short strategy’s monthly performance was predominately driven by company specific news flow. Temper Sealy a US based leading mattress company delivered another exceptionally strong earnings result. Earnings were up +27% and the company also upgraded guidance for the full year with strong momentum likely to continue into 2020.
Conversely the weaker strategies in October were the market neutral strategy and the global resource strategy. The market neutral strategy had a number of short positions bounce during the month, some of which were reduced in size however many still have a number of catalysts to play out and as a result have been kept in the portfolio.
The global resource strategy monthly performance was driven by moves in a number of the strategies core thematic exposures. Despite the BlackPearl Masters Fund being up +6.57% year to date our performance has been held back by our allocation to the global natural resource strategy which has held significant exposure in uranium, cannabis and oil stocks. The trade war between the US and China has also made investing in commodity and commodity related stocks more difficult.
In October the price of uranium finished lower by 7% even though fundamentals for the commodity continue to look strong. Demand continues to grow for uranium with mined production in 2019 expected to be 140 million pounds versus consumption of 195 million pounds. Additionally, it is likely that mine supply will be down in 2020 while consumption will continue to grow.
Shares in cannabis companies have also been sold down significantly as many Canadian growers have sold their Australian stakes at large discounts. The moves have been unrelated to fundamentals and more about capital needs as the Australian medical cannabis market patient growth remains very strong.
In the oil sector the equity price performance continues to underperform the commodity which indicates that there is subdued demand from equity investors. However, it has been apparent in 2019 that there is significant value in the sector and rotation back to value stocks or further progress on a trade deal between the US and China could see many of the oil producers rerate.
While the fund’s global resource manager continues to see some very interesting opportunities in the uranium, cannabis and oil markets they have reduced exposure to these commodities until a clear catalyst can be identified at which point positions can be rebuilt again.
At the same time the strategy has found some very promising opportunities in the oil tanker market where the lack of new tanker build deliveries, increasing stock piling on vessels and vessels being out of the water for fitting of sulphur removing scrubbers has led to a much improved supply-demand outlook.