Our weighted average return in August was +2.67%. Since 2015, we have generated a net return of +39.53%.
In terms of investment strategy performance, our weighted average net returns for August were (a) -0.33% for conservative strategies, (b) -0.71% for balanced strategies, and (c) +7.18% for aggressive strategies.
August was a difficult month for almost all asset classes other than US stocks, as it remains quite clear that international trade tensions have done little to dim US business confidence.
Emerging market securities were hit particularly hard by the economic crisis in Turkey, and traders chose to extend the selling to European banks due to their exposure to the Turkish banking sector. What’s more, Emerging Market currencies sold off (for example Argentine Peso -25.63%, Turkish Lira -24.86%, South African Rand -9.62%) and industrial metals were also hit hard (Copper -6.45%, Zinc -6.52%, Nickel -8.84%).
During times like these, it is hard not to be swept up in the mania of crowds. However, months like this past August provide tremendous opportunity in the long run. How can this be? Well, if you are a confident US capitalist armed with dollars and a surging share price, there will be a point where you will be enticed to buy up foreign assets on the cheap by using your strong currency and cheap access to capital. This proposition is especially enticing if these foreign assets are in markets that have a higher rate of growth than your domestic market – which is the case in most Emerging Markets. Consensus projections for GDP growth for the largest Emerging Markets are still around +6%, and, with the exception of China, are expected to grow even more in 2019. That being said, what is most important is not the rate of growth, but rate of change or ‘surprise’ in terms of perceived growth. Put simply, if economic growth in emerging markets (other than Turkey and Argentina) continue to match or exceed economic growth projections, or are just not as horrendously bad as markets are currently pricing them, there stands to be an impressive rally in Emerging Market securities and currencies. Timing markets is hard and inadvisable, but long-term investors can use situations such as these to buy oversold assets and patiently wait for them to recover.
Last month we highlighted our top equity holding Largo Resources. We are very pleased to report that Largo shares delivered a staggering +44% return in August. Our bullish thesis continues to be confirmed by higher vanadium prices. We have also started to buy back some of the technology holdings that we sold in July. Our colleague portfolio manager Kaspars has done a great job following the developments of the E-gaming business and his chosen company – Activision – has performed very well since we began buying it back last month.
In other news, in August, I was surprised and humbled to be named one of the “Top 30 Creative People in Business” in Latvia by “Kapitals” magazine – Latvia’s foremost business publication. An honour such as is this is only possible if you are challenged on a daily basis by talented and hard-working people, and I am very thankful to our BlueOrange team for their encouragement and support. I am also very thankful to our leadership team and shareholders at BlueOrange for trusting us to build an asset management business from the ground up that puts clients first, encourages new ideas and innovation, and has the patience to invest in ideas that generate superior growth. We are only getting started!
Speaking of our team here at BlueOrange, last month we said good-bye to our analyst Krista. Krista started with us as a summer intern two years ago and grew to become a very important member of our team, even though she was studying full time and was winning World Aquabike championships in her ‘free time’. We wish her the very best in her new chosen field!
Thankfully, our new team member Polina has attacked our very steep and demanding learning curve with determination and persistence, and we are very happy that she has chosen to join our team!
On behalf of our Client Portfolio Management team, I thank you for your continued trust and support!