In September, the BlackPearl Masters Fund finished down 0.59%. For the calendar quarter the fund is up +3.28% and year to date (YTD) is up +7.11%. In September 5 of our strategies were up while 3 were down. Even though our win rate was strong we finished slightly lower due to the fact that our biggest capital allocation for the month was to a strategy that finished -6.3% for the month. However, this strategies performance was on the back of a very strong August when it was up +12.3% so it was not surprising to see this result as some of the core holdings took a breather or pulled back after a very strong month. September was also a good example of the fact that it’s not as import whether you win or lose but how much you win when you win and how much you lose when you lose.
The two strategies that contributed the strongest returns for the month were the long short variable beta Australian focused strategy and the long short variable beta strategy which also invests internationally. Both of these strategies had significant exposure to value stocks. Traditional value stocks have been out of favour for some time but in September we saw a strong rotation from growth momentum type stocks to value stocks which benefited both strategies. This came on the back of a spike in bond yields which was based on some macroeconomic and political improvements and resulted in September being the second largest monthly outperformance of value versus growth stocks over last decade. While value stocks outperformed in September as can been seen from the chart below prior to September value stocks as measured by the media P/E of the cheapest stocks relative to the S&P500 was trading at a significant discount. As a result, we believe that our value managers should continue to benefit from a re-rating of value stocks as this market bias unwinds over time.
The two weakest strategies for the month were the long short concentrated variable beta strategy and the long short macro strategy. As noted above the concentrated variable beta strategy return was a function of some of the strong moves in the portfolio in August being unwound in September while the long short macro strategy had a number of its short position move higher.
At a stock specific level positions which detracted for the month included short positions in IOOF Holdings, BWX Limited and Boral. On the long side a stand out position that benefited the fund was Nickel Mines which was up +25% during September as the stock continued to benefit from a market rerating based on excellent execution at the operational level and an announcement from the Indonesian government that it will stop nickel exports from the 1st of January 2020.
