Flagship Offshore Fund is Up 17%!Dec 06, 2022
Welcome back once again to the exciting world of Emerging Markets!
As we approach the end of the year, we're extremely excited with how this portfolio performed throughout 2022.
And this month is no different as the portfolio returned 16.67% vs. the index's return of 12.87%.
And not only did we outperform the index, but we also did so while taking on less risk.
So, let's dive straight into this month's updates.👇
So what contributed to this month's performance and why? Let's tackle the what first.
As you can see in the chart above, the three largest contributors toward our outperformance were BABA, VALE, & PKX.
While HMY, MOMO, GDS, and others did well in isolation, when factoring in their weighting, their overall contribution was not as significant.
But outside of any specific names, we can see that the average return was actually less than our portfolio's return. So what does this tell us?
It tells us that not only did our stock picks outperform the index, but our use of portfolio management also contributed additional upside.
That's why portfolio management is so important. Not only do you need to pick the right investments, but you also need to know how much of them to pick.
For example, if we swapped BAK & BABA, we would have trailed the benchmark even with the same underlying holdings. For more on how this works and how to use it, just click here.
But now that we've identified the what, let's tackle the why.
So as we said BABA, VALE, & PKX were the 3 largest positions of alpha. But why did these three stocks do well?
They did well because:
Alibaba (BABA): The two largest items that have held back BABA this year have been the fear of de-listing + lockdowns in China. While the fears of both are still present, the latter looks to be finally easing. That's because the Chinese government is finally curbing back COVID restrictions as today commuters in Beijing and at least 16 other cities were allowed to board buses and subways without a positive virus test in the previous 48 hours for the first time in months. Industrial centers including Guangzhou near Hong Kong have reopened markets and businesses and lifted most curbs on movement while keeping restrictions on neighborhoods with infections. Long story short, if China loosens its restrictions, many of these consumer-based Chinese stocks can flourish. That has largely contributed to their strong month as the stock's valuation is beyond cheap.
Vale SA (Vale): Vale has been on a roller coaster ride for the last few years. First, there were stellar gains and then more recently there have been fallbacks as the global mining industry slowed down. However, with Iron Ore now cheaper than its been in the last few years, the thought over the last month, is that prices will start rising again. Pair that with a re-opening in China (they account for 70% of all global iron imports) and higher demand, and there's been a newfound resurgence in the Brazilian multinational corporation.
Posco Holdings (PKX): Another raw materials provider, Posco has seen its stock surge as the outlook for Steel changed over the last month. That's why back in early November, we saw PKX cross above its 200-day moving average -- which is usually a strong bull signal.
So now that we've discussed the performance of the portfolio, let's get into this month's updates.
This month had a bunch of changes as we welcome PBR, ABEV, SUZ, SID, PAGS, & UGP to the portfolio.
While SUZ & SID have been in the portfolio before, PBR, ABEV, PAGS & UGP are total newcomers.
Therefore let's give you a very brief summary of what each of them does:
Petroleo Brasileiro (PBR): PBR is a state-owned Brazilian multinational corporation in the petroleum industry. If you never heard of them, they're giants in the oil industry as they did over $84B in revenue last year and employ over 45,000 people.
Ambev (ABEV): Ambev is also another Brazilian company. But this stock is a brewing company that has since merged into Anheuser-Busch InBev. They operate in 18 countries and its products include beers such as Antarctica, Bogotá Beer Company, Brahma, Bohemia & Stella Artois. It is one of the largest companies by market capitalization in Brazil and in the Southern hemisphere.
PagSeguro Digital (PAGS): PagSeguro is a financial services and digital payments company that is also headquartered in Brazil (notice a theme here?). Founded in 2006, the company primarily offers payment processing software for e-commerce websites, mobile applications, and point-of-sale terminals.
Ultrapar Participacoes (UGP): The final company on our list is also Brazilian and operates in the sectors of fuel distribution, specialty chemicals, storage of liquid bulk, and pharmacies. They are Brazil's 4th largest company.
If you have any other questions, please just message us.
That's all for this month's update. We'll see you with more updates to this portfolio in 2023!