Our weighted average return in November was -0.36%, bringing our year-to-date return to +15.26%.
Many of our favoured sectors performed poorly in November – emerging market bonds sold off, biotech was weak and base metals miners underperformed. Thankfully, our asset allocations and security selection allowed us to preserve capital in our portfolios.
Earlier in the month, I attended an investment conference in Berlin and was taken aback by the amount of construction going on in the city. My perceptions of the German economic zeitgeist were confirmed later on in the month when I heard of an actual case of a commercial lease in Berlin being renewed at a 40% increase from its previous level. Unsurprisingly, Germany reported impressive GDP growth of 2.8% versus an estimate of 2.3%. Clearly low rates in Europe are having the desired effect in its largest economy. Moreover, the Eurozone manufacturing Purchasing Managers’ Index (PMI) hit a new record high of 60.1, which is consistent with a growth rate of more than 3%. Not so long ago Europe was petrified of deflation and interest rates were below 0%. Now the stage has been set for what could be considerable inflation. It remains to be seen how the ECB will navigate this new environment, but we will be avoiding investment grade, long duration European bonds for the foreseeable future.
We were not particularly active in our portfolios last month but took advantage of weakness in European financials to buy back positions that we sold at higher levels. Unlike other asset managers that try to play around certain benchmarks, we only buy and hold what we like and what we believe will generate superior returns for our clients. This provides us with two major advantages over other asset managers: 1) we can take profits when we see fit and not be bothered if ‘underweight’ positions perform well; 2) it encourages us to seek out opportunities before they appear on other managers’ radars (this is where real alpha is generated).
Last month provided a very good example of us seeking out opportunities before they appear on other managers’ screens: we purchased Canadian medical marijuana stocks in our aggressive portfolios. Canada will be legalizing recreational marijuana on July 1st of next year, and the battle to meet consumer demand is raging. This sector has been on our radar for some time now, but we deemed a significant number of successful secondary financings in the space to be a tipping point for institutional investor acceptance. We made gains of over 40% in one month, took profits and continue to evaluate which companies will emerge as the true leaders in this space, as well as which of their competitors they might be buying up along the way.
Please feel free to contact us firstname.lastname@example.org if you would like to hear more about our investment strategies.
On the behalf our portfolio management team, I thank you for your continued trust and support!
FULL DISCLOSURE: Please note that the opinions expressed in this blog should in no way be considered as investment advice or a solicitation to buy or sell securities.