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Despite the rise
of Alternative Energy sources the traditional energy sector is still a
dominant part of the energy portfolio of developed nations. The Energy Production
and Distribution Fund aims to give investors access to this sector which
includes many of the largest companies in the developed world with very
stable cash flows and strong balance sheets. In addition the discovery of new
exploration techniques such as fracking and the
discovery of shale gas reserves in the US provide great growth prospects to
the sector. Another
attractive investment view is that many of these companies are very asset
heavy and therefore need access to credit markets. The European Financial
Crisis of 2011 has dried up the credit markets in Europe and therefore has
brought down share prices of some of the large European utilities way down.
The Energy Production and Distribution also aims to use this opportunity to
accumulate shares of some of these high-quality European energy companies to
benefit from the recovery when the crisis is solved. The Energy
EP&D Fund will invest on a stock specific basis. While there will be a
certain bias towards expectations of a long-term rise in the sector, the Fund
will strive to exploit stock specific opportunities. Some of this analysis
will be based on technical analysis while others might be based on M&A
potential, dividend yield and valuation multiples. The Fund will also
accumulate and maintain as considerable position in US Crude Oil (USO). This
position in USO will be managed more passively; however it will still be
adjusted for expected major market moves as needed. |
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Since
Inception Relative Performance Graph vs DJIA and 7
-10 Year Bond Index Latest Trades
Comments June 22nd’
12 10:54 My concentrated USO exposure in this Fund
has definitely crushed this Fund. I had never expected oil to break below
$80. I still think that the weakness in USO is a result of market sentiment
and it will rocket higher once market sentiment solidly improves. I do expect
a serious market correction in August 2012 though, and if oil does not
improve until then I will have to close my position at a serious loss.
However, since there is considerable leverage in the Fund and I have
incrementally averaged down my cost, if USO improves the Fund will rapidly
turn very profitable. May 18th’ 12
15:57 I have bumped up my USO position to almost
twice its size. Oil is down almost 15% from where I started accumulating it.
It just is too correlated to the market and the market is not holding up
well. As the market recovers oil will probably go back up to at least $105 so
I decided to cost average down and also use some leverage in USO position to
take advantage of that increase. If oil goes back above to $105 this sell-off
and this increase in my position will prove to be very profitable for this
Fund. It should be a fairly less risky trade since market selloff is way
overdone and a relief rally is almost inevitable. May 7th’
12 15:54 The position in oil (USO) has definitely
proved to be too much correlated with the stock market. The deterioration of
the situation in Europe and the pullback in the stock market has hit oil
quite considerably. Medium-term, oil is definitely a buy as some sort of
European QE is almost inevitable. However, I will probably not be able to
hold on for the medium-term without trading the position. My price target to
close the oil position is $120, so approximately $47 on USO. I expect some
sort of a relief rally from the pullback before an eventual summer 2012
swoon. I will try to close the position before that swoon. Mar 28th’
12 12:26 Unfortunately UNG has not yet made the
capitulation formation that I expect. So I rather initiated a position in oil
(USO). The position is quite large but I kept my long Treasury positions so
they should balance each other out. I expect oil prices to benefit from the
latest comments from Bernanke and his commitment to ZIRP policy even if
markets decline. Jan 23rd,
12 11:26 I will probably start trading the Fund with
a long position in UNG (US Natural Gas) as it has set itself up for a major capitulation.
A few days ago it made a daily 7% decline that capped a nearly 30% decline in
9 days. However, I will wait for a truly shocking daily decline most probably
more than 10% before I initiate a long position. Natural Gas is very volatile
so a anything less than 10% does not yet mark the
start of a capitulation in my opinion.
I should also note I might have missed the buying opportunity as UNG
has recovered some of its losses. Still I plan to wait for the true
capitulation before I get long. Dec 8th, 11
14:52 I
wanted to start the Fund by accumulating shares of some Italian and Spanish
utilities which are trading at very low valuations, but the European crisis
does not seem like will be resolved very soon. As a result I have bought some
long term Treasuries for the Fund to take advantage of an expected decrease
in Treasury yields while the European situation goes about. Dec 3rd, 11
13:34 Let’s
go over the general strategy of the Fund. The two main aims will be to take
advantage of the high dividend yields in the European utilities and the
general upward trend in the oil prices. Also relevant will be to invest in
the exploration stocks such as Schlumberger (SLB) and Transocean (RIG) as the
rise in oil prices leads to more and more exploration and drilling of oil in
formerly non-feasible fields. Although perceived as a volatile market, the
mega-cap energy stocks are very correlated to the
general markets and does not have the added volatility of some other related
sectors such as refiners or alternative energy. Therefore, while this will be
an actively traded Fund, the aim will be to simply accumulate shares of the
mega-cap energy stocks and some utilities at reasonable levels. The majority
of active trading will probably occur in the USO (United States Oil) to
protect against market corrections in the price of oil and related stocks. |
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Since Inception Performance Chart vs Equity and Bond Benchmarks
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