Fund Manager
Frank Mersch
For the month of January, the markets surrendered much of their December return. The S&P 500 was off 8.43%, led by financials (-26.31%) and industrials (12.60%). For the TSX, we registered a 2.96% decline on the index, led by industrials (-7.77%).
Our funds faired somewhat better but still nothing great to write about. After a strong start we posted a -0.1% return for the month.
We believe that 2009 will be split into two halves. The first half will exhibit uncertainty and very likely a trading range. During this period, our beliefs will be tested like never before. Earnings are going to be weak in aggregate and solvency rather; credit will be the key catch phrase. Unemployment will continue to rise and markets will question the effects of both monetary and fiscal stimuli. Fear will still trump greed. In this environment we will see a number of false starts. Thus, our strategy during this period will be to trade the portfolio actively. We have begun and will continue to use derivative strategies, which are primarily in writing call options and selling puts. When volatility exceeds 70% on the derivatives, we intend to take action. We also are doing more pairs trades in optionable securities where we can derive premium income from derivative strategies. In other words, scramble for return.
In the second half, we believe we will have a much clearer picture of where we are going. At that point, we will reduce our program, employed in the first half, and concentrate on the new market leadership that will evolve for the next cycle. It is very clear to us that corporate capital will be very dear, yet government largesse will initially be excessive. All governments are enacting fiscal stimulus packages to avert a deepening recession. In all the years we have been portfolio managers, we have concentrated on positioning ourselves where the greatest amount of capital spending is initiated. Once again we see a developing opportunity. In the coming months, every administration is outlining these plans. Simply, road building and infrastructure is too long dated. We are most interested in those areas that will experience immediate benefits. In the coming months we will identify these areas. Currently our focus is on enterprise solutions for the smart grid and bandwidth. Obama got to keep his blackberry and he is technology savvy. He also has stated how the U.S. has fallen behind in bandwidth. Food and its security is paramount, as is alternative energy. Our belief is that we must build our portfolios differently for the next cycle.
Front Street Canadian Hedge - Monthly Commentary
Date Published
Related Fund(s)
Fund Manager
For the month of January, the markets surrendered much of their December return. The S&P 500 was off 8.43%, led by financials (-26.31%) and industrials (12.60%). For the TSX, we registered a 2.96% decline on the index, led by industrials (-7.77%).
Our funds faired somewhat better but still nothing great to write about. After a strong start we posted a -0.1% return for the month.
We believe that 2009 will be split into two halves. The first half will exhibit uncertainty and very likely a trading range. During this period, our beliefs will be tested like never before. Earnings are going to be weak in aggregate and solvency rather; credit will be the key catch phrase. Unemployment will continue to rise and markets will question the effects of both monetary and fiscal stimuli. Fear will still trump greed. In this environment we will see a number of false starts. Thus, our strategy during this period will be to trade the portfolio actively. We have begun and will continue to use derivative strategies, which are primarily in writing call options and selling puts. When volatility exceeds 70% on the derivatives, we intend to take action. We also are doing more pairs trades in optionable securities where we can derive premium income from derivative strategies. In other words, scramble for return.
In the second half, we believe we will have a much clearer picture of where we are going. At that point, we will reduce our program, employed in the first half, and concentrate on the new market leadership that will evolve for the next cycle. It is very clear to us that corporate capital will be very dear, yet government largesse will initially be excessive. All governments are enacting fiscal stimulus packages to avert a deepening recession. In all the years we have been portfolio managers, we have concentrated on positioning ourselves where the greatest amount of capital spending is initiated. Once again we see a developing opportunity. In the coming months, every administration is outlining these plans. Simply, road building and infrastructure is too long dated. We are most interested in those areas that will experience immediate benefits. In the coming months we will identify these areas. Currently our focus is on enterprise solutions for the smart grid and bandwidth. Obama got to keep his blackberry and he is technology savvy. He also has stated how the U.S. has fallen behind in bandwidth. Food and its security is paramount, as is alternative energy. Our belief is that we must build our portfolios differently for the next cycle.