Birkoa Newsletter 27 (end of Jan '23 3rd week)
Dear Birkoa LPs:
Happy to report to you that as of right now, we've not only broken even overall in the net relative to the fund's AUM but finished the first 3 weeks of January +8% (of course, since different investors came in at different points in time, your individual statement numbers will look different - but everyone's positive now). Right now we are beating the markets by 20% for NASDAQ & Dow Jones, and 11% for S&P500. Since I wanted to be a bit sure of the strength of this recovery following the stagnation last month, I waited a little bit prior to sending another newsletter, so excuse my slowness the past 3 weeks. I believe that our recovery and in fact, roaring, is on strong footing with a lot more to come in the coming months. By the time we will have finished out our Year 1 on April 30th, I expect our average return to be higher than it is currently so we're on track to providing the 25-30% average annualized return that is at the cornerstone of this strategy.
Even with the great performance since mid-November, our portfolio has still largely been moving entirely off of Chinese markets, and like I mentioned last time, that's great news for the potential of the fund when other assets do recover fully. That being said, we're seeing a decent turnaround in certain commodities like oil and uranium, but not metals, on the Chinese demand picture improving. We're seeing a rise up in semiconductor stocks that we'd participated in during their slide down last September-October timeframe, along with some of our recent purchases including in ASML. We're further seeing a movement up in cloud computing and SaaS stocks that have either mostly or close to having recovered their losses. In some names, like those belonging in China (Baidu stock that we'd purchased in December as a cloud play following Chinese reopening) which are both Chinese plays as well as Quality factor plays within software, they're up in double digits.
The crypto ecosystem seems to be recovering lately and this rally is at least at a higher peak now than the previous valley it was in for the past 3-4 months. That being said, we're still not in the tokens yet, but our crypto and blockchain companies are doing fine now. Obviously, this is a major holding of ours for the next couple of years in which time I expect triple digit returns now that our companies have shown to be less prone to the fraud weeded out from within the sector. With lending firm Genesis's bankruptcy this past week that could be followed at most by Gemini, we're at the tail end of this saga where crypto businesses (mostly exchanges or lenders - not blockchain-oriented businesses like the ones we own!) with toxic assets within their balance sheets go bankrupt. None of our holdings, given their public profile and higher regulatory statutes, are in that category but they nonetheless took a beating. Now at the minimum they're on their path to recovery and when I think the time is right, I'll get back into Ether and Bitcoin at the right price.
Macroeconomically, the U.S. is seeing a continuous downtrend in inflation but unemployment is still bafflingly low, which is why the Federal Reserve is still non-committal to capping their interest rates level. This is the main reason I have not participated in the U.S. tech sector yet although some names like Amazon & Alphabet are especially attractive - same thing with crypto tokens, which are still sensitive to interest rate risks. I'll continue to monitor the economic numbers carefully and try to find the best calibration to scoop up some of the big tech names for the longer-term despite medium-range stagflation that I foresee on the horizon. I see triple digit plays in some, but it'll be a stock picker's market.
At the end of the month when you all receive your statements, I hope things will have only been heading in the positive direction between now and then. I remain optimistic that it will and in saying that we are prime for further take-offs emanating from non-China elements of our portfolio soon.
Sincerely,
Pranjit K. Kalita
Chief Investment Officer, Birkoa Capital Management, LLC