The impact of closing the SMA coupled with funding and investing in the Fund in the midst of the volatile markets during May and June was pronounced. The Fund’s performance, albeit negative, during the period of investing cash inflows (from inception to the end of June) was better than it would have been if it were fully invested. However, this was more than offset by the cash drag on performance experienced in the SMA in May as a combined consequence of funding the SMA redemption and the custodian’s trading restrictions on that account (these fortunately do not apply to the Fund). These affected my ability to trade currencies and withdraw unsettled cash. Had market prices been stable, or had the SMA been of the same structure as the Fund (allowing it to hold a typical portfolio throughout the month), I estimate that its returns would have been around 3% higher in May.
But more interestingly, the main individual stock contributions (far too many notable detractors) are provided below:
The biggest stock detractor was my holding in Debenhams, the British retailer bought in the SMA in February and still held at a 3.5% position in the Fund at the end of June. The stock has declined by around 30%, and this has been further exacerbated by the 10% fall in the British pound relative to the AUD. I’m currently reviewing this and I expect to provide further commentary in future reports.
Valero Energy, Western Digital and Yuasa Trading were positions sold during the wind-up of the SMA and not purchased in the Fund due to fundamentals no longer meeting my acquisition criteria. With the benefit of hindsight, I sold all of these positions near their nadir realising losses of around 18% on Yuasa and 25% on Valero and Western Digital. K & S, still held in the Fund, was recently purchased and fell by around 18% in the last three weeks of June.
On a more pleasing note, there were a couple of nice performers, most notably British Polythene Industries (a packaging company), which was subject to an agreed takeover. I bought this stock in February and sold in June realising a profit of around 48%. Similarly Ipsos, which is a French marketing and advertising business, ended up being another short term holding due to its share price shooting up after the release of its quarterly update in late April. I simply felt the capital could be better deployed elsewhere. Peak Sports Products, which designs, manufactures and sells sporting footwear and apparel, was sold in May after a privatisation scheme was announced and the share price rose significantly. I realised a gain of around 20% over a holding period just shy of two months.