Luke's Global Fund achieved a return of 4.5% (in constant currency) return over the month of February, and a -5.5% return to date for FY22 on a constant currency basis Our International Benchmark, the S & P 500, returned -3.1% for the month of February, and the benchmark returned 1.8% to date this financial year.
Our portfolio as at February 28, 2022 is outlined in Figure 1 below:
Figure 1- Portfolio Pie Chart
Our contribution analysis for the month of February is outlined in Figure 2 below:
Figure 2 – Contribution Analysis Bar Chart
The portfolio benefited from a rebound in our Reflation Assets, led by Upstart and Datadog, which both released positive results we discuss below.
REVIEW OF PORTFOLIO BREAKDOWN
The breakdown of the portfolio is outlined in Figure 3 below. We continue to reduce our pro-reflation positions, with our pro-reflation positions falling from a 46% position to 39% over the month. We are still well above our 30% target.
The most significant macro event this month was the Russian invasion of Ukraine, and this will have a significantly impacted the macro outlook going forward. It is impossible to predict the impact of geo-political events on the macro environment, but it is highly likely inflationary pressures will increase whilst the conflict continues. We will not try to second guess the outcome, but will adjust our portfolio to account for the broader range of macro outcomes.
Figure 3 – Portfolio Macro Segment Pie Chart
During the month of February, we increased our exposure to pro-deflationary assets and reduced our reflationary assets. Some of our trading activity included:
We reduced our holdings in Datadog, Sea Ltd, and Crowdstrike
We acquired more long duration US treasuries in the form of EDV, and ZROZ.
We added volatility hedges to our portfolio, to benefit from increased volatility that typically occurs in a deflationary / inflationary macro environment in the form of iPath Series B S&P 500 VIX midterm Futures ETN (VXZ).
We acquired Invesco DB US Dollar Index Bullish Fund.
We acquired KS Global Carbon Strategy ETF as an inflation hedge.
COMPANY NEWS & REPORTS
February there were a number of key results as follows:
Zoominfo reported Q4 results on February 15, 2022, with the following key takeaways:
Revenue of $222.3 million, up 13% on prior quarter.
GAAP operating income margin of 11%.
Closed the quarter with 1452 customers worth +$100k in annualised contact value, up from 1250 in the prior quarter.
It was a strong result, but was partially a result of recent acquisitions. Given the current valuation, we have decided to sell our position, but will monitor the development and progress of the business.
Datadog reported Q3 results on February 10, 2022, with the following key takeaways:
Revenue growth accelerated, up 21% on the prior quarter, to $326.2 million.
2010 customers now with +$100 k annual recurring revenue, up 63% over the prior corresponding period.
Free cashflow of $106.7 million for the quarter.
Despite the outstanding results, we sold into the post-result rally, given the poor macro outlook. We will hold our current position through the cycle, and re-build our position at the appropriate time.
Upstart reported Q4 results on February 15, 2022, with the key takeaways:
Total revenue of $305 million, up 34% on the prior quarter.
GAAP Income was $60.1 million, up 500% over the prior corresponding period.
Bank Partner originated loans of 495000, totalling $4.1 billion, up 294% on prior corresponding period.
Conversion rate increased to 24% this quarter.
Q1 guidance for revenue to be flat for the period.
Auto dealer rooftops onboarded grew to 410 up 294% on prior corresponding period.
The results were exceptional, but, we consider there are substantial unknowns regarding the performance of Upstart’s AI platform in a recession, customer concentration risk, and cyclical risk. Given these tails risks, we will reduce our position size in the near term.
KEY LEARNINGS THIS MONTH:
Our key learnings for this month concerned the issue of sovereign risk. Sovereign risk is a very low probability event, but has a very high consequential outcome. Presently, it is looking highly likely that investors will see Russian & Ukrainian assets be confiscated, or destroyed. recent events has shown us that investing in non-aligned countries, particularly authoritarian countries comes with significant consequences. We have no assets impacted by the recent conflict, but, going forward, we will only invest in countries with central bank swap lines with the US Federal Reserve. We consider that countries with access to swap lines with the US Federal Reserve are an aligned nation, with US backing. Here is a non-comprehensive list of swap-line nations for those interested:
If you have any opinions on the companies we hold, or would like to know more about our investments, we would love to hear your feedback.