Luke's Global Fund achieved a return of -5.5% (in constant currency) return over the months of May & June, and a -21.9% return to date for FY22 on a constant currency basis Our International Benchmark, the S & P 500, returned -8.4% for the months of May & June, and the benchmark returned -11.9% to date this financial year.
Our portfolio as at June 30, 2022 is outlined in Figure 1 below:
Figure 1- Portfolio Pie Chart*
*Excluding Short position in HYG
TOP CONTRIBUTORS
Our contribution analysis for the months of for the financial year of 2022 is outlined in Figure 2 below:
Figure 2 – Contribution Analysis Bar Chart
Of the 42 portfolio holdings over the financial year, 45% were successful investments. The biggest drag on performance were my long term, high-beta positions, where we were not aggressive enough in trimming our positions as the Macro environment turned against high beta assets in late 2021. The two greatest drags to the fund performance were Sea Ltd, and Upstart Holdings. We sold only 33% and 42% respectively of our positions in early 2022. We were simply too timid and too slow in adjusting our portfolio to the prevailing macro environment.
The contribution analysis, broken down according to Macro styles is outlined in Figure 3 below:
Figure 3 – Contribution Analysis Bar Chart – Marco Segment Breakdown
The Goldilocks/Reflation regime holdings were down significantly, which was partially offset by the performance of the Deflationary regime holdings.
Review of Portfolio Breakdown
The breakdown of the portfolio is outlined in Figure 4 below. We closed out our Inflation macro regime exposure late in June 2022 and significantly increased our deflation macro regime assets.
Figure 4 – Portfolio Macro Segment Pie Chart
TRADING ACTIVITY
In May & June, we closed short positions in XRT, FM, and EMLC.
We closed our Inflation Macro regime holdings, which included US Oil, and Agriculture commodities.
We increased our deflationary macro regime holdings through Short NASDAQ 100 ETF, and Short Russell 2000 ETF. We also added to our long duration bond positions.
COMPANY NEWS & REPORTS
Key news in relation to our holdings:
Upstart Holdings
Upstart Holdings released their Q1 2022 results on May 9. Key Takeaways:
Revenue $310 million, with 2% growth on prior quarter.
Cost growth at 2%.
$36 million operating cashflow (adding in stock based compensation expense).
Downgrade in earnings forecast due to uncertainty in lending outlook.
Loans on balance sheet ballooned to $598 million as at March 31, 2022
Datadog
Datadog released their Q1 2022 results on May 5. Key Takeaways:
Revenue $363 million, with 11% growth on prior quarter.
Cost growth at 11%.
$80 million operating cashflow (adding in stock based compensation expense).
Crowdstrike Holdings
Crowdstrike Holdings released their Q1 2023 results on June 2. Key Takeaways:
Revenue $488 million, with 13% growth on prior quarter.
Cost growth at 12.5%.
$113 million operating cashflow (adding in stock based compensation expense).
KEY LEARNINGS THIS MONTH:
The single biggest lesson we have learned this financial year, is the importance of managing macro risks, as the financial markets travel through, liquidity, profit, growth, and inflation cycles. Ignoring macro risks leaves investors exposed to significant and avoidable risks. We have a great deal to learn how best to manage macro risks, and we acknowledge the services of 42Macro for assisting us navigate a treacherous 6 months.
We were also rather slow in adapting our portfolio to one incorporating and addressing macro risk regimes, taking 4-5 months to learn and apply our macro risk regime. We hope to maintain the macro risk regime more effective going forward.
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.
Regards,
Sean