Portfolio Brush – Up (1/22)

The first portfolio update of 2018, how touching. Seems like only yesterday I was getting ready to launch this website and try to come up with the first post. The start of 2018 has been good to both funds, and I wanted to take some time to dive a bit deeper into the holdings of the Voyager Fund (SteadFast Fund is purely algorithmic).

SteadFast Fund Update

Next week will be the official one year anniversary of the 100% purely algorithmic SteadFast Fund, the perfect option for the more risk averse individuals who perhaps read this blog. The SteadFast Fund combines various asset classes that historically are proven to perform well in one of the four different macroeconomic environments (High/Low inflation, High/Low Growth).

Since 31 January 2017, the SteadFast fund has returned 10.57%, sports a beta of 0.08, and a Sharpe Ratio of 2.22 (for those that care about the Sharpe Ratio). I am extremely pleased with the first year of returns for the SteadFast Fund. When designing SteadFast, the goal in mind was to provide a “safe haven” for capital preservation, not necessarily capital growth and appreciation. I expected returns, but not in the double digits. Going in, I would have been elated with 6 – 7% returns, everything else now is gravy on top. In a wild bull market like the one we are living in now (and have been for the last 8 years), I certainly do not expect the SteadFast Fund to outperform the market. The way the percentages are allocated inside the portfolio it shouldn’t be possible to beat the S&P in a bull market like this.

The real bang for your buck comes in times of downturn and recession. Historically backtested, the SteadFast Fund had a max drawdown of 16% during the Great Recession. Compare that to the 54% drawdown in the S&P500, you can see why the SteadFast Fund was so interesting to me to create. It took the S&P nearly three times as long to get back to breakeven as it did the SteadFast Fund. This is where it shines. For those investing the money they need to live off of, they cannot afford a 54% drawdown in their NAV.

Going forward, I expect the SteadFast Fund to continue to appreciate marginally if the market appreciates further, and I expect it to do okay during times of recession.

Voyager Fund Update

Now the real fun begins. As of tonight (January 22, 2018), the Voyager Fund sits at 8 positions, all on the long side. The fund is designed to be Long/Short, I just haven’t had the desire to be short in this market. In other words, I can’t find a company or an index that I would like to short (except for Bitcoin … still kicking myself for not going short at 17k!). I’ll go through each position.

Aegon NV (AEG)

Since entering on December 13, the company has risen close to 12%. AEG remains the top insurance provider in the Netherlands, and with their market share dominance set to continue, I hope I am smart enough to ride this out to profit territory. Currently the stop loss is set at 6.23 and I entered at 6.25, for a total risk of 2bps ($14). As long as prices continue to advance I should be moving from breakeven to small profits by the end of the week in AEG.

United Healthcare (UIHC)

After breaking out of a descending right triangle, UIHC price has done nothing but increase. After entering on January 2nd at 17.60, the stock rose to where it currently stands at 19.66, a nearly 12% increase. My one regret with this trade is waiting to long to enter. In a perfect world I should have entered right at the $17 mark. For one reason or another I was late to the pregame party and missed out on squeezing out even more alpha than what is currently being generated.

Stop loss sits at 16.60 for an open risk of 18bps ($144). Right now I am having a tough time finding a price level to move my stops up to due to fear of moving them up too high and getting stopped out prematurely. I will keep you updated on the progress of that in future portfolio brush-ups.

Sierra Oncology (SRRA)

SRRA has turned into a real winner for the Voyager Fund. After posting tremendous quarterly results, and factoring in the future developments of their products in a niche market, I loved the idea of going long SRRA. Technically, the charts presented with an inverse head and shoulders (some of my favorite long set-ups to trade). I went long October 25th after price retested the new support level of the head and shoulders.

I entered at 2.03 and the stock currently sits at 3.22, an increase of nearly 60% (20% return per month average). Stop loss currently sits at 2.92. If stop loss is hit it would present a profit of 78bps ($619).

Consumer Discretionary Select ETF (XLY)

This trade was initiated solely due to classical chart set-up. I am getting much more comfortable with classical charting principles, and after dabbling in some ‘technicals only’ trades, I am increasing my confidence tenfold in the matter. This will not be the norm for the Voyager Fund, as a bottom – up approach will be taken 99% of the time. It is nice, however, when that 1% of the time you can generate some positive returns for the portfolio.

I went long on November 17 at 93.60 and it currently sits at 106.77, an increase of 14% (7% average return per month). Since this stock had a higher share price, a 14% increase from 93 to 106 is providing very nice returns for the portfolio. Compare that to the near 60% return of SRRA for almost the same amount of open profits ($835).

Stop loss is positioned at 100.59 for a risk of -57bps ($447 gain). The stock is experiencing 9 straight weeks of gains, so I wouldn’t be surprised to see a pullback at these levels, which is why my stop is placed far enough away to account for such events.

Vaneck Vectors Russian Fund (RSX)

Looking back at the number of views for each post on the blog, my two part Long Russia Thesis is by far the most read out of any. I say that to preface that I was finally able to express that bullish thesis through an equity only a couple weeks ago. I wrote that thesis almost a year ago and I have been waiting for the right time, and it finally presented itself.

RSX had a near 3 year inverse head and shoulders forming, with breakout levels at 22.50. The macro data from Russia still remained solid, and once price broke that level I was in. I entered on January 8th at 22.83 and the price now sits at 23.54, an increase of 3.18%. I think this trade has a chance to be a real home run, and prices could very well test 2012 highs of $33.

Stop loss is set at 21.38 for an open risk of 21bps ($163.85). Over the next couple of weeks I plan on moving the stops up slowly because my timeline on this trade is very long term (probably 5 years total). There are a couple things I might do with this trade and I haven’t decided which idea is the better one for the Fund. I could either pyramid this trade, or go long the Russian Ruble against the USD, which also is a very nice long term chart. You will get an email notification on whichever trade I end up making, just now that I am still wrestling with this one.

Crude Oil (USOIL)

I originally expressed my bullish thesis on oil and the oil industry through that oil basket of stocks. However, I moved those stop losses up too quickly and was forced out of all of those trades. Since then only two oil longs have kept, one of which is my long in the commodity.

This was another trade I entered later than I should have, entering on 57.07. Price currently sits at 63.94 for an increase of 12%. Stop loss is sitting at 57.36 for an open risk of -1bps ($10.15 profit), or a scratch. With price recently breaking the 200 MA on the weekly charts, I suspect this trade is just getting started. I have my stop losses set far enough away to account for any mid range pullbacks.

Michael Kors (KORS)

This has been that supernova trade that more than makes up for all the smaller losses. The Voyager Fund relies on trades like these each year to provide the returns for the Fund, and make the difference between a good year and a great year.

I entered KORS on July 28th after failing to find a good entry two previous times. Below are my notes from my trading log right when I entered the trade:

Risked 0.50% capital ($360). I have already expressed my fundamental interest in the company mainly because I deem it undervalued. I originally entered the trade on a false breakout within a channel, got out, entered again on another false breakout and got out before the heavy selling took place. Is three times the charm? Who knows? That is why I love risk management and limiting my losses first and foremost. I don’t care if I’m wrong two times before, because if I’m right this time, it will more than make up for the combined loss of the two previous trades of ~ 1.0% of capital.

I entered at 36.36 and the share price currently sits at 65.70, an increase of nearly 64%. Stop loss is placed right at the 200 MA of 59.46 for a guaranteed profit of 417 basis points if hit ($3,300.44).

Ensco PLC (ESV)

ESV is my only loser in the portfolio right now, but I’m not too concerned as I love the company, love the fundamentals behind the company, and love the turnaround play in the oil industry. I went long January 9th at 7.20 and the current price is 6.95, a decline of 3.28%. Stop loss is placed at 6.03 and open risk is 26bps ($202.41).

ESV had a slight pullback after I entered but I am confident in the longer term trend of the industry it sits, hence the far away stop loss. Price would have to decline another 13% before the stop loss gets hit.

Closing Remarks

As you can tell, 2018 so far has been good to both Funds. However, I do not care about short term gains, I care about long term NAV appreciation and sustainable wealth creation. I am not long bias or short bias, I merely try to find value where I can, and maybe sprinkle in some shorting of securities that have no business commanding certain prices. I leave the rest of the speculation and market prediction to the talking heads on CNBC.

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