Travel and Leisure Fund
As the economy recovers and people's discretionary incomes rise, one of the first things that gets a boost is the travel and leisure sector. Especially in the transitional part of the recovery people don't have enough extra capital to buy big-ticket items but they also have been living on a minimum expenditure mode for a while so they tend to reward themselves with a holiday. Also, as the economy recovers, business spending improves, and business travelers who are the most lucrative customers of this industry return to spending. The two obvious beneficiaries of this rise in travel are obviously the airlines and the hotels. As people drive long distances the refiners are expected to get a boost also.
From an investment perspective, many of these companies that should benefit from the coming economic recovery trade at very reasonable valuations. Obviously these companies are very sensitive to any unexpected kink in the recovery and are relatively volatile due to the discretionary nature of the spending they cater to.
Travel and Leisure Fund caters to investors who are of the opinion that the financial difficulties are mostly in the rearview (at least for the USA) and who are searching for an investment theme which would provide returns greatly in excess of the Dow Jones Industrial Average. If the investor can tolerate some volatility we expect the Travel and Leisure Fund to be one of the best performing of our funds on a risk adjusted basis. The Fund will also carry a substantial position in USO (US Crude Oil) to hedge its position in especially the airlines. This hedging position is expected reduce volatility in the Fund. It will also be managed to take advantage of technical movements in the price of USO, to protect against expected major corrections.
June 5th’ 12 11:52
The pair trade that I have done was highly profitable for a while taking the Fund almost up another 30% but it has come down back to break even. The problem is the weakness in oil. While the WNR side of the trade has worked very well, the short LCC position is not doing well because low oil prices benefit the stock. However, the weakness in oil is a direct result of the weakness in market sentiment. Once market sentiment improves, oil will rocket higher and with both sides of the trade turning profitable the Fund could be up close to about 150%. The trade is quite leveraged and if oil prices back up to $105 that should be enough to achieve that profit target.
May 4th’ 12 13:53
I have caught another great trading opportunity for this Fund. US Airways has made another huge rally which is purely speculative. I wanted to short it but was afraid that the speculators might even take it higher. The speculative run seems to be over, but it was still too risky to plain short LCC. To compensate for the risk I hedged the risk in short LCC with a long position in Western Refining. LCC probably won’t be able to continue to rally if the market sentiment turns down. And if the market is resilient WNR is a stock that performs very well in a rising market therefore it should compensate for the loss in short LCC. In a market rally actually, LCC might still crash to back to a more normal level while WNR rises quite considerably too. That would be the ideal close to this trade.
Feb 23rd’ 12 15:58
I am about to close a spectacular trade for the Fund before market close, as the Fund is up more than 30%. The quick jump in US Airways was not justified and it was a smart move to take advantage of that short opportunity. The high oil prices also helped. I am actually quite bullish on US Airways longer-term and I will probably use this reversal to build up a position for the upside. However, I will wait until oil prices settle a little, before taking that risk.
Feb 21st’ 12 10:35
The high oil prices have finally popped the bubble in US Airways (LCC). This has turned out to be a great trade for the Fund. I will try to ride this downside move a little more before I close. It might not trace back all of its jump higher in the last month and a half. I will watch the technical for the right level to cover the short position.
Jan 30th, 12 10:02
The travel sector is one of the sectors that I am quite bullish about. Ironically, however, I started trading the Fund with a short position. US Airways (LCC) has gone pretty much vertical since it beat its earnings estimates by a wide margin and is also the target of a takeover rumor by Delta. I could understand the earnings beat and the 20% rise that day but it seems the rest of the move is due to the Delta speculation. Even if Delta wants to make a bid, I just don’t anticipate they will be able to get the necessary financing for a deal like that in this market. The stock has gained almost 45% in about 5 days so, it should be a rather safe and profitable trade to go short the stock at this level.
Jan 13th, 12 10:54
The generally resilient market has led to a nice strong rally in the airlines also as, most of the airlines are high-beta stocks that tend to do very well in an up market. Also the sector is quite reasonably valued. However the bankruptcy of American Airlines shows that the sector is still prone to high oil prices. The bankruptcy has given rise to a set of merger rumors which is also leading to some trading activity. Although there are synergies to be gained from some M&A in the sector I doubt anybody will sell itself at a sensible valuation.
Jan 5th,12 9:46
Jan 5th' 12 9:46 Tesoro's Q4 loss warning has hit the refiners hard which is very good news for the Travel & Leisure Fund. Hopefully this will create a sustained downward pressure on refining stocks and will create a great buying opportunity. A probable market correction will probably exacerbate the downward move. It also signals that sustained high oil prices are a good hedge against travel related stocks. High oil prices squeeze the margins out of many sectors. I will evaluate the technicals as the market develops but so far I plan to wait until TSO gets to 15 and WNR gets to 8,8 before I start accumulating shares.
Dec 8th, 11 15:17
The European situation does not seem close to being resolved. As a result, similar to other Funds I have initiated some long Treasury positions in the Fund to take advantage of an expected decrease in the Treasury yields.
Dec 3rd, 11 10:43
This Fund will concentrate mostly on the airlines, refiners and lodging. Airlines and refiner are both very volatile sectors, not necessarily because of their fundamentals but, by their stock prices. As a result limiting the downside risks in this Fund is going to be rather tricky. However, when trying to avoid risk, the Fund should not pass up good opportunities to accumulate shares at reasonable levels either. Also some of the risk will be offset with a relatively less volatile position in United States Oil (USO) equivalent to about 20% of the Fund. It seems a good strategy to wait until the European situation clears up before starting to trade this Fund, as a sudden market carnage might give rise to corrections up to 20% in the sectors that it will invest in. Along the way there might be some missed opportunities but I wouldn’t want to risk starting the Fund with a big correction.