Seeking Absolute Returns


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Seeking Absolute Returns

  1. 1. MODEL PORTFOLIO SEEKING ABSOLUTE RETURNS 18th March 2009 Sound Advice EquityBell Securities was set up in October 2008 by a collective of seasoned market professionals to provide outstanding investment advice to clients running non-discretionary portfolios through direct market access brokers and wealth managers. The credo is absolute returns by giving sound advice in asset classes that are individually appropriate to the risk appetite and base currency of each particular client. The EquityBell Securities leveraged model portfolio was started on 27th January 2009 as a paper trade with an initial value of £100,000. The portfolio currently has an NAV of £95,425 -4.58% in 49 days* Leverage 1.43 times Starting Value £100,000 Only our most robust investment ideas will be placed into the portfolio explaining the Portfolio NAV £95,425 rationale, entry price with comments on reasons for holding and explanation of the exit and price and net profit and loss. Loss £4,575 -4.58% Loss taken £4,797 Open trades Date Asset size FX price value margin Price value £ P/L Current Positions now 26/1/2009 MRW Long £50k GBP 258.00 50,052 7,500 250 48,500 -1,552 FX shares CFD’s none 26/1/2009 SBRY Short GBP 309.75 -50,024 7,500 314 -50,711 -686 shares £50k CFD’s Commodities 18/3/2009 UST 1o Long 1 US$ 121.50 121,500 2,700 125.00 125,000 2,461 None yr June contract / future GBP Fixed Income Closed trades Long 1 contract US Treasury Date Asset size FX price £ value margin Exit Exit £ P/L 10 yr June futures (ZNM9) date price taken 26/1/2009 EURJPY Short EUR 118.606 92,988 2,800 02/02/ 113.35 4,155 Equities FX 100k 2009 Food Retail Spread 26/1/2009 Carrefour Long €50k EUR 26.495 50,341 7,000 04/03/ 24.97 -2,580 shares CFD’s 2009 Long Morrison CFD 258p 26/1/2009 LVMH Short EUR 43.42 -50,367 7,000 04/03/ 45.25 -1,890 Short Sainsbury CFD shares €50k 2009 309.75p CFD’s 26/1/2009 June Gilt Short 1 GBP 118.71 118,710 3000 05/03/ 122.00 -3,290 Future 2009 26/2/2009 Gold Long 100 USD 913.5 91,350 1300 16/03/ 926 921 10/3/2009 ozs 2009 25/2/2009 EURUSD Short EUR 1.2786 88,152 1,763 18/03/ 1.3080 -2,113 FX 100k 2009 *These are gross figures that do not include commissions and funding charges on some products THIS IS A MARKETING COMMUNICATION Intended for information only and should not be construed as an invitation or offer to buy or sell any investment vehicle or instrument. This note has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and is not subject to any prohibition on dealing ahead of the dissemination of this marketing note. EquityBell Securities will provide extra detail on data or graphs used in this note upon requested.
  2. 2. MODEL PORTFOLIO SEEKING ABSOLUTE RETURNS 18th March 2009 Sound Advice FX Federal Reserve Bank officials were reported in the Wall Street Journal as saying they were impressed with the UK government quantitative easing model of buying back treasury notes with printed money. The Fed is considering buying back US Treasuries to compliment their recent practice of buying commercial paper and debt issued or guaranteed by Fannie Mae and Freddie Mac (the government-backed mortgage giants). This is intended to bring down longer term rates to encourage borrowing. Last week in the UK, the Bank of England bought back £2 billion government bonds from £10.5 billion they were offered. The sellers were foreigners who repatriated the money and weakened sterling. The intended target of UK pension funds did not sell any government bonds as they were reported to be unwilling to take greater credit risk with non-government bonds. Commentators are questioning Gordon Brown’s wisdom of wasting printed money if it goes straight offshore weakening sterling. The Federal Open Market Committee (FOMC) meets tomorrow (with a statement due Thursday) to review US economic/financial conditions and determine the appropriate stance of monetary policy by the Federal Reserve Bank which may affect the current strength of the US$. We were stopped out of the short EUR100,000 EURUSD at 1.2786 at 1.3089 and are watching events for a possible change of stance from the Fed and possible weakening of the US$. Commodities Source: Saxo Bank Gold is still seeing selling pressure from physical sellers requiring cash. We have chosen to take profit US$926.50 and sell the 100 ounces bought at an average US$913.5. In the chart on the right we can see Gold forming a head and shoulders pattern that may suggest a downside target of US$800 per ounce if the US$887 support level from the 27th January 2009 is broken. We still have a long term target for Gold at over US$1,000 per ounce when the perception of coming inflation returns. We will look to buy back into Gold at lower level to be decided later Fixed Income The weekend meeting of the G-20 finance ministers pledged to restore growth. If interest rates are allowed to languish close to zero for too long as Japan did, this stifles banks lending to each other, so the longer term target is to show a perception of inflation and raise rates to encourage rewards from risk taking. Longer term we see central bank short term rates staying close to zero for many years while encouraging the 10, 20 and 30 year rates rise significantly to spur risk activity. This will be bad for bond prices and short futures should do very well when we decide rates are about to embark on a concerted long term rise. The chart overleaf shows the front month futures contracts of the US Treasury 30 year bonds and the UK government long term Gilt bonds. This shows how UK long term bond prices (light blue line) have risen as rates declined and the US bonds (dark blue line) have languished.
  3. 3. MODEL PORTFOLIO SEEKING ABSOLUTE RETURNS 18th March 2009 Sound Advice In the short term, US$ and UK long dated rates are probably set to decline (bond prices rise) and we would suggest buying 1 contract of the June 2009 30 year US Treasury futures (code ZNM9) @ 121 16/32 (value US$121,500). Source: Saxo Bank Equities Equity markets are significantly off their lows and enjoying a rally based on the hope that in a year or eighteen months, growth will be back on track and inflation restored. Valuations still appear high based on earnings projections, but buyers are gaining the upper hand. The S&P 500 is current at 770 and has technical resistance at 930. 1050 S&P500 1000 950 900 850 800 750 700 650 01/11/2008 01/12/2008 01/01/2009 01/02/2009 01/03/2009 The jury is still out on whether the global fiscal stimulus packages can create inflation a year from now and equity market buyers are fighting individual investors need for cash. We would prefer equity indices to retest the recent lows before embarking on a countertrend rally sparked by hope of inflation returning. The primary trend of equity indices is lower, but if Central Bankers can inspire the perception of inflation, equity indices can have a substantial bear market rally through the summer. th Once equity indices come back to levels near the lows seen on 5 March 2009, we will consider a trading buy for the model portfolio, but the scale and duration of such a rally is an unknown risk.
  4. 4. MODEL PORTFOLIO SEEKING ABSOLUTE RETURNS 18th March 2009 Sound Advice Food Retail Spread Morrison Supermarkets 250.00p on a 12.28 PE and a 2.01% div yield, 2009 est EPS 20.80p Sainsbury 314p on a 15.94 PE and a 4.17% div yield, 2009 est EPS 19.10p The spread between Morrisons and Sainsbury is now 64p which is a £3,102 loss over our initial level of 52p having been as high as 76p. We continue to hold the position. Comment We will look to short Gold if the support level @ US$887 is significantly breached, but longer term we continue to identify a buying target. Short term we are looking for US Treasury rates to come down as liquidity is injected with a knock on weakening effect on the US$. We are looking at a short term countertrend rally in equities starting close to the support levels seen earlier this month to establish a trading long position. The trick is finding the correct entry point during the current wild volatility. EquityBell Securities Dowgate Hill House, 14-16 Dowgate Hill, London, EC4R 2SU Tel: +44 (0) 20 3189 2108 Risk Warning Notice: Equity Bell Securities is a trading name of Equity Bell Limited (registered office: Talbot House, 8 – 9 Talbot Court, London EC3V 0BP. Registered in England and Wales No. 6725781) is an Appointed Representative of London Islamic Investment Bank Limited, which is authorized and regulated by the Financial Services Authority. Whilst every attempt is made to ensure the accuracy of the information provided, no responsibility can be accepted for any inaccuracy. The information provided cannot be relied upon as constituting a recommendation, nor construed as any offer to sell, or any solicitation of any offer to buy investments. No liability is accepted for any loss whether direct or indirect, incidental or consequential, arising out of any of the information being untrue and / or inaccurate, except caused by the wilful default or gross negligence of EquityBell Securities, its employees, or which arises under the Financial Services and Markets Act 2000.