Diary Of An Investment Fund (Part Five: Evolving Strategies)
13 January 2008October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February.
- Mark Twain
September 2007
Global markets begin to recover from the meltdown. PSE Index stages a 6.2% rally to recoup YTD gains to 19.8%, effectively rebounding 23.9% from its recent low and now within 5.8% of its all-time high. Daily turnover was thin and foreigners remained net sellers for the month.
The rebound was blue-chip driven with TEL hitting a new all-time high and AC rising after announcing a share buy-back next month. Property and banks rebounded later in the month on BSP rate cut speculation with ALI outperforming. Mining took center stage as LC, PX, MA, and GEO surged 29% to 57% each on the back of record highs in mineral prices. MER was the index loser, falling after being handed a disappointing tariff rate hike.
"Market may re-test recent highs" the manager says. The fund gains 4% to bring YTD yields to 17.8%, now underperforming the index for the first time this year. The fund zeroed its cash position in the month, aggressively increasing its exposures to Communications, Property, Mining, and Banks, while cutting positions in Power, Food, Holding Firms and Media. Mining stocks (PX, AT) are now an increased presence in the fund's top holdings, replacing Power (EDC, FPH, FGEN) and Food (SMC, JFC, URC). The fund's position in Communications giant TEL is now notably largest compared to previous months.
October 2007
The market sets a new all-time high in October as the BSP cut its policy rate early in the month, following the US Fed. Inflation remained tame despite record crude prices while the Peso surged to a new 7-year high. Estrada is given full presidential pardon, while a blast destroys a portion of Ayala Land's Glorietta mall.
Property and Mining took the spotlight this month, with PX leading gainers on the back of surging metal prices, while MEG and RLC rose after the BSP cut interest rates. ALI lagged due to the issues surrounding the Glorietta explosion, while Food and consumer stocks, notably URC fell to new lows.
The shift in fund strategy continues in October as positions in Food, Banks, and Media were further reduced, while positions in Communications, Property, and Mining were increased. PX is now the fund's 2nd largest holding and the Mining sector is the second largest increase in the fund's holdings since December 2006.
November 2007
The manager writes "Global concerns resurface." The PSE Index continued to correct from its recent high as another round of subprime-related concerns emerged. Foreigners were net sellers in the month as write-downs by global banks raised the probability of a US recession.
Late in the month, an attempted coup broke out at the heart of the Makati CBD but was quickly ended by government troops after seeing no mass support for the rebels.
Large caps outperformed, with TEL rising as investors flocked to quality. ALI rose as other Property names fell. Top index gainer was LC which advanced after it disclosed that China's second largest mining company Zijin proposed to acquire a stake in one of its' key mine sites.
"We anticipate futher rate cuts from the Fed and subsequent policy responses from the BSP" says the manager. The fund lost 8.1% in the month as positions in Banks and Food were cut by more than half. By now the fund's YTD shift from Banking and Food to Communications, Mining, and Property has become apparent.
December 2007
After a roller coaster year, the PSE Index ends up 21% for 2007. The fund trails the index ending at a 17% gain. The US Fed cut rates again by 25bps, which disappointed global markets, but late window-dressing brought up the indices slightly by year-end.
The utilities outperformed in the month: MER, FGEN, FPH, BPC, as well as telecoms: DGTL soaring on takeover speculation. Property stocks were a drag.
The fund exited Food completely and reduced property positions, while increasing positions in Power, Holding Firms, and Mining. By year-end, it is obvious where the new focus of the fund's strategy is: Communications (TEL is the single largest exposure of the fund), and Mining (PX, LC, and AT are top ten holdings).
Next: Lessons From A Diary
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Indeed, October is a very volatile month for stock speculation. During the month occurs end-quarter reporting (for Q3), thus global corporations and fund managers are busy cooking something or booksquaring their accounts, taking profits to make FS look better, and repatriating funds from subsidiaries abroad. The other months are January, April and July.
On the other hand, the third Friday of March, June, September and December are also quite volatile especially in the global scene due to “triple witching”. In this event occurs simultaneous expiration of stock futures, stock options and invidual options contracts. Although, it seems that we are not very much affected by this event since futures trading in the country is still suspended; however, the global financial activities that are happening during the triple witching hour trickle down to the local market as well.
Thanks for the feedback kalman. Your mention of October is deja vu to me of a discussion I had sometime back on seasonality. October is notoriously funky.
http://financemanila.net/2007/11/30/the-seasonality-problem-part-eight/
is this your personal diary mtm?
No, and I won’t even try. From the looks, it’s tough being a fundie. What got ING is its size–it got pretty big after March 2007–pretty much due to the marketing. So deploying their new funds aggressively in the middle of the year made them vulnerable to the August crash. Then again, what can they do?