Ouch!! That’s what this month felt like, particularly on the last day when the market enjoyed a face-melting rally into the quarter end with the Aussie Dollar, Euro and S&P moving very strongly higher and therefore against me.

The problem this month is that basically, everything went wrong. Kelpie was down 1% relative to the FTSE All Share which was up 3%. The largest holdings in the portfolio did poorly;

  • Third Point Offshore down 3%
  • Energold down 10%,
  • Zicom Group down 12%
  • Aberdeen International down 12%
  • Sandstorm Metals & Energy down 21%

Pretty tough in a rising market! The hedge book took some serious pain costing the portfolio several percentage points.

The only strong performer in the portfolio was Yukon Nevada Gold, up 13%, which made several major announcements particularly drawing a conclusion to their “turnaround” and announcing that they are up and running as a fully producing gold miner on track to achieve 150,000 ounces for the year. Should they meet this target the stock is very cheap on all metrics, they are a possible takeover target in the near future.

The underperformance of the portfolio is in my opinion due to many of the positions being “deep value” in a time where the market has been rewarding momentum and quality at any price and ignoring the cheaper segments of the market. The charts below from Cannacord Genuity demonstrate the wide gulf in factor performance.


Below we can see the quarterly performance of value relative to the market. This is demonstrably one of the longest and deepest periods of value underperformance we have experienced. What can be seen in August 03 and Feb 09 is that these periods were ended by very strong rallies where the market re-assessed the sustainability of these ultra cheap stocks and rewarded them with higher, more realistic valuations. It is my contention, and that of the analysts who put together the data, that we are due another one of these periods of outperformance soon.


Regular readers of the blog will probably know that there is a vast array of academic research on the long term outperformance of value factors but for those who don’t or those looking for a quick refresher, I recommend the following from Eyqyuem Investment Management.