Birkoa Newsletter 37 (mid-July '23)
Dear Birkoa LPs and prospective investors:
I wanted to write today re: some recent positive developments within our portfolio, so this is a mini-newsletter of sorts that fits in as a half-monthly update. A couple of avenues of our portfolio have been undergoing interesting transformations and I'll mostly focus on them. The areas of our portfolio that I won't focus on today are ripe for outperformance at any time; in other words, even though the tone of this newsletter is overwhelmingly positive, I still wanted to highlight how much more room there's to run.
During my last newsletter, I had broken down our positioning into roughly the following -
Regional banks
Crypto/Blockchain
Commodities
U.S. AI tech
China
Semiconductors
I'll mostly focus on positive news within #1, #2 & partially #4 today, and leave with a tone of optimism around #5 that could boost our portfolio further as the year progresses. Some attention will be paid to the macro factors that I believe are only going to help us further our cause. Ultimately, my primary focus is not to celebrate or declare victory in any way, but to highlight how current investors as well as new capital could continue to benefit from said favorable conditions.
Birkoa fund is attracting newer sources of capital and it had grown 5-fold in June, and is expected to grow another 2-fold beginning August 1 (so 10-fold in total between June-August). And we're expecting more LPs to come onboard as a result of various positive discussions we've been having as a result of our performance this year. Once again, I remain humble and acutely interested in only maintaining this as we move along. But there's such a worry in the industry of the "hot hand" (which means if a strategy does too well then there's less room to run as they've run their course), and the significant theme of this newsletter is to explain why despite the string of positive performance, I think there's considerably more to come and new capital could be put to great use.
Blockchain/Crypto - Back on June 13, the SEC announced an investigation into Coinbase which sent the stock plummeting to $45 from $58. Even though I hadn’t directly invested in Coinbase (rather indirectly via our Blockchain ETF), I decided to buy Coinbase directly taking advantage of this dip and after identifying the lawsuit was without much merit. Since then, we’ve had a court ruling in Coinbase’s favor, along with Blockchain ETF filings by two major institutional investors - BlackRock and Fidelity. As a result of which, Coinbase has rallied about 120% thus far thereby benefiting us tremendously. Furthermore, there was a separate federal ruling against the SEC on an alt coin called Ripple (the SEC had labeled it as a security which it’s not per the ruling), which further accelerated Coinbase stock performance. Therefore, our blockchain ETF and Coinbase positions have benefitted immensely as a result, with the majority of the surge since the end of June.
U.S. AI - One of our plays has been in EVs both in the U.S. and China - as a hybrid technology-geopolitical play in that the U.S. and Chinese government would heavily subsidize them as the race for tech/AI dominance heats up. Following the July 4th weekend, our EV names in both countries have picked up substantially as a result of stronger than expected production numbers coming out of Rivian and Tesla, which boosted the entire sector. Rivian especially has been on a tear.
Similar story for other names within the AI sector like Salesforce/NVIDIA/AMD, etc. All in all, they're on a bit of a hot streak and that's boosted the portfolio substantially even since the end of June, which had netted a 6.5% return.
My main point is to tell investors to not think that the rally is nearing the end or anything like that, because after doing a bit of under-the-hood analysis as to the source of the outperformance, a lot of our sectors are still underperforming (#5 China) while others are just decent with a big upside potential (#6 Commodities). China especially has been signaling major stimulus support to its economy and remember the AI premium is still not baked into Chinese tech companies unlike the U.S. majors! China could roar at any moment.
Regional Banks (#1) have been massively successful for us already, and I'm holding onto them because their individual price targets are still double digits away, while some within the sector inherently are also turning into AI bets (like Schwab, for instance). The point is there's still loads more to go and any new capital can immensely benefit from the undervalued aspects of our portfolio. As a result, I expect us to do even better than we are doing now.
I will write to you with a real newsletter in a couple of weeks time that'll go into details of where the macro of it all lies, and explain some of our new geopolitically diverse bets on countries like Brazil. Until then, I hope this provides you continuing comfort and context.
Sincerely,
Pranjit Kalita
CIO