The aim of our Mega-Caps fund is to invest in the most well-known companies in the world. Most of these companies are either popular household names or industrial bellwethers. Many of the companies included in this fund have market caps and annual sales above USD 30 billion, stable cash-flows as well as very strong balance sheets.
The financial crisis of 2008 have proved to be an opportunity for these behemoths as after the crisis settled down these big companies used their strong balance sheets to acquire smaller but thriving businesses at very reasonable valuations. The Mega-cap companies also enjoy the benefit of access to abundant low-interest credit which gives them a comparative advantage in making investments growing their businesses compared to their smaller peers. They also use their access to credit markets to raise cheap credit and use the proceeds to buy-back their stock which elevates their stock prices.
The Mega-Cap fund is an actively managed fund. While the simple aim is to generate a return in excess of the Dow Jones Industrial Average, many active management strategies will be used to trade securities rather than just accumulating a basket of the shares and then passively maintaining it.
June 21st’ 12 15:54
Finally some good prospects for the Fund. MS would usually get crushed in a down 1,5% day like this. However it is just down as much a sthe market is. This might be a very strong indicator that MS has finally stabilized and ready to go through a short a queeze. I should note that in previous short squeezes in 2012 MS easily rallied more than 20% and sometimes close to 45% so the chances that my long MS call option positions might makeup for almost all the losses of this Fund is not as far stretched as it seems. What needs to happen for that is some good news out of Europe even it is just hype. That would give me the chance to close out those long MS options with a good profit. Given how far down this Fund is these are the types of trades to make unfortunately for this Fund to get back even.
May 29th’ 12 14:51
This Fund was supposed to be the most stable of the Funds, as it invests in big-cap stocks. However it just turned out to be the opposite as the most volatile and worst performer. As the most tradable big-cap stocks are the financials like MS and GS, and the oil stocks, the Europe situation definitely hit this Fund hard. Also I was completely wrong in many of my trading decisions for this Fund. The huge selloff in May 2012 without any respite for a short-term rally, really hit the Fund hard by messing up my option trades on MS. Since the Fund is down so much and it needs to roughly triple to break evenunfortunetely does not leave many choices but to use option trades on the volatile mega-caps.
May 4th’ 12 13:34
I expect a relief rally before a summer 2012 swoon which I expect will start in late May. In order to take advantage of the oversold conditions on MS and DB I have initiated quite large short-term option positions. If we get the relief rally these options should more than quintuple. I also keep my other long positions in a few quality mega-caps. The market is getting very volatile. There will be a lot of trading opportunities around May and June of 2012 probably. However the trick will be not to miss the big crash which should take the market valuations to more reasonable levels.
Apr 17th’ 12 11:52
I made a lot of trades for the Fund as the market experienced a very sharp pullback on the back of the correction in Apple. In my opinion this is not the major pullback yet and the correction in Apple should give way to a quick bounce. To take advantage of that quick bounce I accumulated some positions with a large one in Apple. I also closed down my long Treasury positions as the yields have come down very sharply from the 2,30 level. The Treasury trades were similar to the other Funds. I will put on the same long Treasury trades once the yields jump back to 2,10 level. I am bearish on Treasury yields and the stock market in the medium-term so these recent trades are just to take advantage of a quick bounce. By the way Apple has already turned out a good profit on my position. It should bounce back until the 630 level probably.
Apr 5th’ 12 11:32
The Fund has made back all of its losses with just a whiff of weakness in the market. This goes to show how much this market is dependent on sentiment and hype. Even a slight weakness crashes stocks like MS. I have close out my positions without pushing too much. The next move I will make will probably be to wait until many of these financials go up and then take bearish options positions. The situation in Europe is not solved yet and I definitely expect a more major correction in the next 2 months. The Fund will stay with its bearish strategies until market goes down to levels accommodative to accumulating long positions.
Mar 26th’ 12 15:54
After the swoon this Fund got in its MS position I should probably explain why this Fund had such a concentrated short position in a single stock, rather than applying the Fund strategy which is to take advantage of the strength in mega cap stocks. The simple reason is markets are way overextended to initiate medium term long positions in many stocks in my opinion. Initiating long positions at good entry levels is the main determinant of longer term success in the Funds. The short position in MS was just a trade to keep the Fund active and take advantage of an opportunity which actually was quite profitable for a while as you can get from the performance graph. I should mention I still plan to initiate another short position in MS from a higher level, if the market keeps its resilience and the opportunity to apply the real strategy of the Mega-Caps Fund isn’t there.
Jan 23rd’ 2012 9:53
Haven’t traded in this Fund for a while since the market is not at levels that are suitable to accumulating shares. The short option positions meanwhile have expired worthless providing a 100% return, despite the late rally in financials, with the exception of Morgan Stanley. Morgan Stanley options have been exercised since the wild late rally in financials have taken it above 17,50. The options have converted into short 85.200 shares of Morgan Stanley and as soon as Morgan Stanley corrects into more normal levels I will close that short and that should take the return from the short option positions back into 11% from 4,5%. Check back to learn how the MS position turns out. I should also note that MS options were sold for $0,71 so the break even on the options is not $17,50 but approximately $18,20.
Dec 7th' 11 15:44
The margin calls keep coming. I had to close out another 15% of positions and take the loss
Dec 7th' 11 15:32
Just had to close about %5 of my positions due to a margin call. No secret this rally in GS and MS has caught me off-guard.
Dec 5th' 11 14:35
The resilience of Morgan Stanley in the face of even the S&P Credit Watch news is very curious. The 70 bips reduction in the Italian 10 years and the 50 bips reduction in the Spanish yield would translate to around 6 - 7 % increase in those bonds with a 10 year duration. The assumption probably is that Morgan Stanley holds so much of these bonds that, the increase in those bonds results in a direct considerable increase in its book value of the whole institution. However, what a predicament it is for a diversified investment bank to be based on only a handful of securities with no easy way to diversify. Let’s also note that the jump in MS, will hit the Mega-Caps fund a little, but the shares are too volatile and unpredictable to try to zig-zag on a short term news flow so I will sit it out and not put change my position.
Dec 2nd, 11 11:45
Something's up with Goldman Sachs up 8%. Some heavyweight thought it was too cheap to wait at 95 I guess. I will wait till it gets closer to 80 to start getting in.
Dec 2nd, 11 10:53
Sold some out of the money calls in some financials roughly 20% above the current price. I had to go with financials since implied volatility on the other mega-caps were too low to be viable.