Portfolio Update - August 2021

Updated: Sep 5

This is not investing advice. Seek a financial professional before making important financial decisions. Nothing we say or write is a recommendation to buy/sell/or trade any security.


UPDATED: Podcast now on Monday at 6PM EST



Summary


Our primary strategies and outlook are largely the same as our last update a month ago. The overall theme is still one embracing the 2nd Tech Bubble that we called bottom on in May. Specifically, calling bottom on genomics and 3D Printing stocks which made up a majority of our overall exposure. Two weeks ago we called bottom in Crypto...and last week we called top on Bonds. Both calls appear to be playing out and we feel fairly confident about our positioning in the current environment.

Link: https://twitter.com/IntuitEcon/status/1392270995906613254?s=20


That said our portfolio has changed materially, especially in the space of precious metals, bonds, and crypto.


  1. Precious Metals - Sold our gold position to buy silver miners. This was in part because we have more conviction in the precious metals space and saw a bottoming out in electrification related stocks.

  2. Crypto - Moved all of our Ethereum position into wallets instead of relying on a mix of Grayscale $ETHE and Coinbase. We also bought DeFi Technologies ticker $DEFI $DEFTF (link to research paper).

  3. Bonds - Placed a large short position against corporate bonds via ticker $LQD to hedge against inflation and protect against a correlation regime change.


Finally, we are moving some of our liquid securities to Interactive Brokers in preparation for creating a "Hedge Fund Incubator" so that we can build an auditable track record before launching our fund. This is making our portfolio performance more challenging to track as our securities are spread out across multiple platforms. We hope to start sharing auditable performance in a month or two. As a result of the multiple platforms our portfolio holdings may not exactly reflect those provided below, but they are substantively very similar.


Holdings


Our portfolio are concentrated across six primary and eight secondary strategies across three asset classes similar to our update in April. We hold 41 securities long and two short. These positions are rank ordered by Weight relative to net asset value (NAV).

Here are our positions grouped by strategy. Note that some primary and secondary strategies overlap. These weights do not reflect true exposure for several reasons including leverage through options and differences in sensitivity across securities. For example, buying call options on a highly volatile genomics company provides potentially more exposure to both the genomics strategy and idiosyncratic risk of the individual company relative to say buying $ARKK which has some exposure to genomics but is diversified across many stocks.


Leverage Calculations


We use leverage in three ways. One is through the purchase of long dated call options. This is less risky because we know our total potential loss is 100% of notional. We also use leverage to take naked short positions on securities that we believe to be overvalued. This is potentially more risky because we could theoretically lose far more than notional. That is why we typically focus naked short positions on large diversified ETFs and preferably bonds which by construction tend to have limited upside. We are doing that now with corporate bonds. We also run a Long/Short strategy where we take leverage long positions in our favorite securities and short them against other securities in the same asset class, typically stocks. We are doing this now with our short on the S&P 500.


Our total leverage ignoring optionality is technically 210% ... a calculation that sums all exposure absolute notional values. However, 60.85% of this total is short ... including 20.1% against the S&P 500 and 40.75% against investment grade corporate bonds. To construct the table above we opted to recognizing the short on the S&P 500 as a hedge against market risk and used the absolute value of the LQD short to better reflect our total "Inflation Hedge" position of 70.38%. Turning this the SPY weight from positive to negative is what accounts for the 20.1% x 2 = 40.2% drop from 210% to 170% above.


Ignoring these short positions entirely would put our leverage at 149.37% of NAV. We believe the corporate bond short to be essential market neutral until proven otherwise...so that puts total leverage at 129.27% or 29.27% above a typical unleveraged portfolio. We consider our short against bonds to be defensive and actually reducing risk, but that remains to be seen and subject to debate.

Leverage and shorts are are considered by many to be more complex and risky trading strategies. We use them to reduce risk, but we could make mistakes and thus exposure ourselves to heavy losses.


Strategies


We described those for 3D Printing, Genomics, Education Revolution, and Decentralized Finance in this weeks article on Value vs Growth (click below).

We will be elaborating on our strategies and individual stock selections more in future publications. These will initially be published for subscribers only.


Thank you for your support!


Sincerely,

@BernardBaruch


www.IntuitEcon.com

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