Updated: Oct 29, 2018
In July the BlackPearl Masters Fund finished up essentially even with 6 of our 9 strategies generating positive performance. Over the last 12 months the fund is up +12.8%.
During the month the stand out strategy for the fund was our long short high conviction strategy which finished up over +5%. It has been pleasing to see this particular strategy perform well again over the last few months after treading water over the last couple of years. As long term investors we know that any investment strategy will have some ups and downs in the short term and we also know that these are usually the best times to invest. As a result we took advantage of the short term weakness by deploying additional capital to the high conviction strategy over this period.
This has begun to pay off as the strategy has generated over 11% in performance for the fund over the last 3 months. During July a key contributor to the strategies performance was a position in Technology One which finished up +16%. The price increase was driven by the company's presentation which reiterated guidance of 10-15% profit growth.
At an individual stock level, the fund benefited from a short position in Asaleo after the company announced a profit downgrade and the stock fell by 50%. The downgrade was 30% below previous guidance and was driven by higher pulp input costs as well as increased competition in the sector.
The fund also benefited from a short position in Celltrion after the share fell 18% on the back of speculation that the Korean regulator will change the rules around capitalising R&D expenses which would negatively impact Celltrion reported profits.
On the long side of the book the fund benefited from a position in Qantas with the stock up 9% as the company continues to benefit from positive trends in the domestic business. Reliance Worldwide a plumbing manufacturer also added positively after rising 11% as the company completed its acquisition of John Guest which has been well received by the market.
During July some of the funds underlying holdings in technology stocks detracted slightly as technology stocks globally experienced a pull back. It’s worth noting though that many of these stocks have contributed significantly to the funds performance over the last 12 months and the fund has taken advantage of the short term pull back to add to some of its core technology positions.
Additionally, in the tech sector the fund managed to benefit from a short position in Facebook as the stock fell after announcing weaker results that included lower daily active user counts, forecast of weaker revenue growth and expected margin compression.
During the month the ongoing trade wars caused some big moves in base metals such as Zinc, Copper and Nickel which were down 6, 5, 7% respectively. However, our managers continue to see fundamentally tight demand and supply markets for base metals and as result took advantage of the sell off by selectively purchasing equity positions that had sold off significantly over the past 6 weeks.