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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. |
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Since
Inception Relative Performance Graph vs DJIA and 7
-10 Year Bond Index Latest Trades
Comments 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. |
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Since Inception Performance Chart vs Equity and Bond Benchmarks
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