Sign in
Sign up
Moby Premium

You are currently reading a preview of Moby Premium. To read this report in full. Please consider becoming a subscriber.

Start a free trial ➔
Moby Flagship Offshore Fund

The Moby Flagship Offshore Fund

portfolio strategy Jan 12, 2023

Welcome back once again to the exciting world of Emerging Markets!

As we told you last month, we were extremely excited with how this portfolio performed throughout 2022, especially as the portfolio finished the year with a strong month of performance -- up 16.67% vs. the index's return of 12.87%.

Well, the good news keeps on rolling because this month the strategy is up another 5.55% vs. the index's return of 3.87%!

If you're new to this strategy and want to see how it works, we highly recommend checking it out: here

But if you're a regular, let's dive straight into this month's updates.👇 


Performance Review:

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 two largest contributors toward our outperformance were BABA & EC.

And when looking at BABA in particular, we see that the stock is up a massive 75% since its November lows.

And when looking at the relative detractors, we see that the worst names in the portfolio were SQM & BAK -- which have both been trimmed back (more on this below).

But now that we've identified the what, let's tackle the why.

So as we said BABA & EC were the 2 largest positions of alpha while SQM & BAK did the worst. But why did these stocks act in such extreme ways?

  • The Contributors:

    • Alibaba (BABA): The three largest items that have held back BABA over the last few years have been the fear of de-listing, lockdowns in China, & Jack Ma. Let's address each one.

      • Jack Ma: He went dark for much of the last year but has finally resurfaced in Thailand and has also given up control of the fintech giant. While you may think that's bad, that's actually given many investors confidence that issues with Beijing & Alibaba may finally be over.

      • COVID Lockdowns: And speaking of Beijing, it looks like they're finally taking a pro-business standpoint. That's because, as we told you last month, they finally started to curb back COVID restrictions. This includes opening up more travel, commerce, and production. And just recently, they also announced that they'd be opening up their borders once again. With more accommodative policy, means more consumption -- which fuels Alibaba strongly.

      • De-Listing: While fears of a de-listing in the US are still present, they continue to diminish day over day. And, they've dropped so much, that Goldman Sachs decided it was time to also issue an overweight rating. These 3 factors contributed to their massive spike over the last few months.

    • Ecopetrol (EC): Ecopetrol is the largest petroleum company in Colombia. So why are they up so much while other energy names are flat-to-up? Well, increasing energy prices have helped EC, but they're also getting a major boost in demand due to what's happening in Russia. It's no secret that the US has massively increased their oil output since the war started, but other countries have also done the same. And now that the war in Eastern Europe has raged on much longer than expected, companies are turning to emerging markets to fuel their energy consumption -- which massively helps out EC. But it doesn't stop just there. There's a real fear that oil from Russia (~10% of the world's energy exports) could completely shut off in the next few years -- which would drive demand toward drillers like EC. But how is that possible? Hear us out for a second. Most of the Russian oil is produced in fields that are both extremely old and far from the bulk of the Russian population. Pair in the fact that most of the western drillers left Russia and oil production in Russia is at real risk of going to 0. Here's how:

      • Proximity: Most of Russia's oil travels thousands of miles before it reaches the end users. And it mostly travels through the pipelines they've built. But guess what's at risk of shutting down due to the war? Their pipelines! This is because their pipelines, which serve as their core infrastructure, are in danger of being torn to shreds. If these pipelines get damaged/destroyed, Russia would need to transport the oil in other more expensive matters for years -- before they could fix it. But is that even possible? That brings us to our next point.

      • Age: As we said, the pipelines and infrastructure are old. Add in the fact that they're located in Siberia, and the weather there puts these things at major risk. If the age or the proximity majorly stunts the oil manufacturing/transportation, Russia would have no choice but to shut down production until they fixed the issues. That's because the oil in the pipelines would have nowhere to go and Russia wouldn't be able to transport the oil in a meaningful way to the rest of its country. 

      • And when looking back at history, this happened before! The last time they did this was in 1989 when the Soviet Union collapsed. And guess what happened then? Basically, it ended up taking millions of manhours and help from western drillers, for 32 years, to finally get their production back on track. If something happens again, we could be looking at the total demise of 10% of the world's energy. And finally tying this back to EC, this would be a massive tailwind for them and other drillers -- should this play out.

  • The Detractors:

    • Sociedad Química y Minera de Chile (SQM): You may have never heard of this stock but that doesn't mean it's not extremely important. That's because they are the world's largest producer of lithium. And given lithium is a much-needed material in the production of batteries and electric vehicles, this company has seen massive tailwinds come their way over the last few years -- hence why their stock is up 65% in the last 12 months. But why is it down over the last 30 days? Mostly due to fears of a recession in the US. If a recession occurs, then the demand for EVs and other battery-based products would decrease, which would see a dip in their revenue. Long story short, we believe this is a momentary pull-back and they'll be fine in the long run as the global demand for Lithium will only continue to increase.

    • Braskem (BAK): While Braskem is a major Brazilian petrochemical company, they're not getting the same tailwinds at EC. Why? Well, this one is largely due to the operating factors at play. First Petrobas was going to sell off its stake, then a new CEO was appointed and now there is unrest in Brazil after the elections. Long story short, BAK is surrounded by controversy which is affecting investor confidence in the name. We'll continue to monitor it and see how their finances are affected.

We hope you're still with us! And now that we've discussed the performance of the portfolio, let's get into this month's updates.


New Portfolio:


Old Portfolio:



This month had a bunch of changes as we welcome TKC, GDS, PAC, GGB & others to the portfolio.

While PAC & GGB have been in the portfolio before, TKC & a few others are total newcomers.

We won't dive into the specifics of each, but these names were selected by our algorithm as undervalued names with strong growth opportunities.

We'll update you next month with how these all played out!