Saturday, October 20, 2007

All Fund Holdings Updated Mid October

Much like a mutual fund sends quarterly reports which shows all their holdings, I will do a comprehensive display of all positions once a month. September's break down can be found here. This time I put it all into Excel and brought it into the blog so it can be shown by weighted dollar amount, and % of fund, instead of just the stock symbol/sector like I did in September. As always the top holdings (all those >1%) can be found in the right margin of the blog, and I update that at least weekly.

For purposes of this analysis I broke foreign holdings into 3 categories: (a) China (b) India (c) All other

Looking at the breakdown below, I have to say this would of looked very differently just a week ago. Some major changes created by the recent market swoon
  1. A large increase in energy exposure - while I did cut back on Trina Solar (TSL) this week, I added to the deep sea oil drillers earlier this week (which hurt Friday), and then added back to my oil service trio heavily on Friday. I also added Bolt Technology (BTJ) and CGGVeritas (CGV) late this week. Until I did this analysis, I was shocked to see the energy exposure up to 28% of the fund. That's a bit too heavy for what I intended; and with the potential for oil to drop to (gasp) $78-$82 I am sure the market will throw the baby out with bathwater. Remember my positions are not exploration type of stocks whose prices rise and fall with the price of crude. But in panics markets don't differentiate.
  2. India was increased this week. I am a bit wary of increasing any further simply because emerging markets are very overextended and prone to falling but (a) this week's scare in the Indian markets created some opportunity and (b) these companies continue to execute as shown by ICICI bank's results Friday.
  3. I was underweighted infrastructure and mentioned last weekend, I wanted back into these names on pullbacks. While this was not a major pullback, it was something so I have started re-establishing larger positions. Infrastructure was the biggest sector of the fund back in August and early September, before I prematurely pruned the names back. It is now back to 10% of portfolio and if the market drops further, and creates even better prices in these stocks I'd like to get that to 15%+.
  4. My short positions are down to 7.3% of the fund; this is the lowest in a while as I let go a lot of my short positions in layers into the Friday selling, letting go a big blast in the last 5 minutes of the day. Again, I cannot short companies directly - if I could I'd be directly shorting financials, homebuilders, retail, and restaurants. So instead I need to rely on these short ETFs which are sort of blunt instruments instead of fine tuned combs. With that said, on day's like Friday UltraShort Russell 2000, and UltraShort Real Estate were up 7%, and UltraShort Real Estate was at plus 6.5%. Markets usually don't go straight down so I'd expect to see some bouncing next week and into that I will re-establish some of these positions.
  5. I applied a lot of cash Friday as well - I went into the day at 14% and now below 6%.
Other thoughts:
Overall without a lot of direct exposure to the hottest part of the market, China, I was able to do very well these past 4-5 weeks. Any fool could of bought the 5 largest Chinese stocks trading in the US and done well I suppose this past 6 weeks.

Most of my exposure is in some way related to global growth so the risk now is the fear factor that global growth will slow due to US economy heading to recession. My thesis is that if China and India and Brazil drop down to 5-6% growth, the stocks in my portfolio will still be outperformers; however with 9-11% GDP growth in those countries, I don't think a lot of people are positioned for any type of slower growth in emerging markets as they are priced for perfection. So US companies who rely on foreign growth could unfairly be beat up. With that said, where are you going to invest for growth if US companies are slowing and you feel global companies will slow down due to slower growth in emerging markets? You won't have anywhere to park your money.

That same theory (slowing worldwide growth) could hurt crude oil price 'perception' as well, if not reality. The reality is entire cities are being built and entire populations are moving from rural to urban - so for every Prius we buy here in America to save a tiny bit of energy, it is getting overwhelmed by the demand dynamic by emerging markets. These minor energy saving initiates we do here are like handing a person on the titanic a bucket and saying, start bailing out the water.

Throw on top the nationalization of energy companies and this hurts supply even more i.e. Venezuela has been producing less crude as they have kicked out international majors; Iran sitting on some of the largest crude deposits in the world has to import GAS since their refining infrastructure is in such disarray. So while this is a crowded trade and needs some gas let out of it (pardon the pun), once the chicken littles of "oil to $55" get done clucking, we will go back to reality. As you see I don't have any exploration companies - so crude at $62, $72, or $102 doesn't matter to me. Short of crude going to sub $50 I don't see budgets being pared back for deep sea oil drillers, oil services, et al. That doesn't mean the market won't panic and throw these names out the window if crude dare go back to where it was a few months ago (gasp, the $70s?) Another reality, crude is priced in dollars - with Ben taking us to 4% (I truly believe it) within next few meetings, I don't see any salvation for our dollar - and that pushes up price of crude. Sooner or later world populations are going to want crude taken off the dollar standard.

The two areas I have been missing (aside from direct China exposure) are the mining companies and dry bulk shipping - the former I believe is more exposed to 'worldwide slowdown' fears, and the latter appears to be in a bubble itself (also relying on world GDP growth to infinity). Hence, to be insulated as much as possible by any worldwide slowdown talk - I'd rather be in agriculture because once you let the genie out of the bottle (rural to urban migration, better living standards) there is no going back. So while copper/base metal prices (within a long term uptrend) might suffer a bit (near term) if perception is that worldwide growth will slow, we will still need more food. Hence I am favoring these fertilizer companies even more each day I mull the future direction of the fund. And I'd still say the long term commodity bull is there in mining names as well so a correction in those names would be a great buying opportunity for a 3-5 year view.

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