What a two weeks

So what a two weeks since I last wrote.

Unless you've been under a rock the world has woken up to the problems created by a rapidly increasing rate environment. The big question remains what happens when rates are suppressed in an inflationary environment?

Our portfolio is now back down to 1.7% up YTD, at least still positive, and tracking the S&P 500. However we have been buyers in the last few sessions, notably deploying 7% of our cash yesterday (15th March) and are now down to 19% cash. Some of this is short term focussed, however we have also started taking some positions in longer term plays where the risk/reward has become asymmetric.

Of note, we took a reasonable starter position in EWZ leaps, two years out and slightly OTM at present. Whilst we are currently paying for a chunk of implied volatility in these, the position is relatively small and we will look to add to those if valuations remain subdued as the volatility comes off.

Likewise we have initiated a position in KRE. Now this could be premature, but it does seem like a lot of negativity is now priced in. Valuations are off nearly 50% on a basket of US regional banks, which seems hard to believe the entire sector will remain so suppressed. We have created a synthetic long position here on the leaps, with some protection to the downside and helping to balance the current high implied volatility. Again taking a two year view here.

Other trades include selling 10% OTM short dated calls on GDXJ as I think this first wave will fade (to be clear, these have been sold against a basket of juniors we hold for the longer term). We have also sold 25% OTM puts in URNM (strike of 22.5) which we'd happily be buyers of should the index get there.

Others longs include adds to PBR.A, BATS, IMB, YCA, U.UN, FUU, ECOR, re-initiated a long in BAS, and recommencing positions in ISO, UUUU, FCU, WUC. Many of these are smaller adds with a view to continue to build the position if prices continue southward. Other areas on our radar are increasing positions in UK Housebuilders, recommencing positions in WHC and YAL, and initiating positions in some selected consumer staples. However we remain agnostic to sector should value become readily available.

It should be an interesting few months ahead.

A cautionary note - if it isn't clear the positions above are in funds controlled by us and are in no way a recommendation to anyone.