Tuesday, July 6, 2010

Portfolio gains 2.1% in June, STI up by 3%

Our portfolio gained 2.1% in a turbulent June (to $0.999 a unit), underperforming the STI's 3% gain. The portfolio is essentially flat (-0.1%) for 1H 2010, while the STI is 0.6% lower on a total return basis. Key contributors to the portfolio's performance were Memtech International (+15.8%), Berkshire Hathaway (+13%) and Best World International (+11.5%), while Wells Fargo (-10.8%) and Noble Group (-5.5%) were key detractors.

Wells Fargo slugged, but Berkshire Hathaway surges
US equities were some of the worst-performing stocks in June, as economic data largely surprised on the downside. Wells Fargo was a key "beneficiary" of the poor sentiment on the sector which had largely stemmed from fears over European debt crisis contagion effects, and the weak US housing market served to dampen sentiment on the stock even further. With financial reform focusing on credit card issuers (and the maximum interest they are allowed to charge), many expect bank bottomlines to feel some form of negative impact. At US$24.88 (on 2 July 2010), the stock trades at just 1.21X book value and we may scoop up more shares on the cheap if a market panic ensues, perhaps sparked by negative newsflow from European bank stress tests.

On the other hand, Berkshire Hathaway gained 13% in June, as Buffett showed his ability to pick football teams as well as he picks companies. His insurance unit reportedly insured Carrefour against losses (the retailer reportedly had a promotion where they would refund customers of flat screen televisions if France won the World Cup), and avoided a $30 million loss as France exited the competition in the first round.

Interesting to note, but obviously, this was not the reason for the run-up in Berkshire stock in June. The stock was added to the Russell 1000 index on 28 June, and made up about 1.1% of the index upon inception. Fund managers and index funds which track the Russell 1000 had to purchase the stock, driving up the stock's price over the course of June, even as the overall US market slumped. While this was obviously a good time to sell, we continue to like the company's philosophy (and of course, its management) and are reluctant to sell out. The stock may experience weakness after fund managers have had their fill, but we continue to hold the stock for its long term potential, rather than try to benefit from its short term fluctuations.

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