Birkoa Newsletter 48 (post-U.S. Election Nov. 2024)

Dear Birkoa LPs, prospective LPs and well-wishers:

November 2024 was a remarkable month for our Birkoa Max Fund (our main fund operational since May 2022), driving year-to-date net returns to over 31.5%, outperforming the S&P 500’s 27% growth. Our ITD numbers stand at > 60% net, with the S&P500 at ~47% gross.  Key highlights include:

Summary

• Strong Risk Management: Impressive Sharpe Ratio (>1.45) and Sortino Ratio (>3.0) over 12 months, and Sharpe Ratio (>0.95) and Sortino Ratio (>2.0) over 24 months

• Sector Performance:

  • Cryptocurrency & Blockchain: Strong rebound with Bitcoin near $97,000 and Coinbase up 50%

  • AI & Cybersecurity: Gains in Snowflake, Salesforce, and CrowdStrike

  • China: Recovery driven by property sector stimulus

  • Semiconductors: Continued growth despite temporary setbacks in Nvidia

  • Japan: Significant rebound, particularly in SoftBank with its AI investments

  • Banking: Strong performance in investment banks post-election

• Risk Management: Short-term VIX hedge showed value during August market crisis despite 6% net loss

Newsletter

This brief post-election update provides an overview of Birkoa’s key portfolio developments. A comprehensive year-end newsletter, including a detailed 2025 outlook, will follow next month.

Birkoa Max Fund’s November 2024 Performance and Strategic Update

As we near the end of November 2024, Birkoa Max Fund’s performance has exceeded expectations. Our year-to-date net return is over 31.5%, with November contributing more than 16%, showcasing our disciplined and strategically focused approach.

This update highlights our post-election performance, emphasizing key portfolio developments, adjustments and risk management outcomes. A full 2025 outlook will be included in the year-end newsletter.

Risk Metrics and Volatility Management

Our focus on managing risk-adjusted returns continues to yield impressive results, as demonstrated by our Sharpe and Sortino ratios:

    •    Sharpe Ratio (2% risk-free rate):

    •    Past 12 months: > 1.45

    •    Past 24 months: 0.97

    •    Sortino Ratio (2% risk-free rate):

    •    Past 12 months: > 3.0

    •    Past 24 months: > 2.0

These metrics highlight our ability to deliver consistent returns while managing downside risk effectively. The Sortino Ratio’s significant outperformance over the Sharpe Ratio reflects our strategic capability to harness market volatility advantageously.

Notably, November’s exceptional returns are expected to further enhance these risk-adjusted metrics in upcoming updates, cementing Birkoa’s reputation for robust risk management.

Our short-term volatility hedge on the VIX (via VIXY ETF) incurred a 6% net loss since December 2023 but proved its value during the August market crisis. As global markets dropped 5-6%, our fund posted positive returns. We will continue to monitor and look to add to this hedge especially as new capital rolls in, allocating additional capital at opportune levels to achieve asymmetric returns.

Portfolio Highlights by Sector

Cryptocurrency and Blockchain

After a period of underperformance, our cryptocurrency and blockchain holdings have rebounded significantly following Trump’s election. Coinbase has surged by over 50%, and our blockchain & payments holdings have delivered remarkable gains.

Bitcoin’s price, hovering near $97,000 with potential to break $100,000, has acted as a strong tailwind. We believe there is further room for growth, making this sector a key contributor to our November outperformance and a promising component of our future strategy.

Software-Oriented AI and Cybersecurity

This sector has experienced a remarkable resurgence since Trump’s election, driven by deregulation and a favorable interest rate outlook.

Several of our holdings, such as Snowflake, Salesforce (reaching an all-time high), and C3.ai (recovering year-to-date losses), have shown impressive gains. Tesla has notably benefited from its association with Trump, and companies like MongoDB and UiPath are also showing signs of recovery.

Cybersecurity names such as Palo Alto Networks, CrowdStrike, and Arista Networks have contributed positively. In particular, CrowdStrike has rebounded significantly from its lows after its faulty update-led outage issue earlier this year, providing a key boost to this segment.

China Sector

Between our last correspondence at the end of September and now, we’ve witnessed a significant flurry of activity from the Chinese government, particularly aimed at stimulating the broken-down property sector. This move has allowed us to recover over two years of losses and turn our portfolio positive in China.

Although markets have slightly saturated since mid-October, China’s economy is showing signs of recovery, particularly in the consumer discretionary field. We expect further stimulus measures targeting domestic consumption, even as a means to fight Trump's export tariffs threat. Notable highlights include Meituan’s strong earnings (announced this past-Friday), which bode well for sustained growth.

Semiconductor Sector

Within the semiconductor sector, we’ve experienced strong performance throughout the year. However, some names, including Nvidia, Qualcomm, ARM, and AMD, are down from their year-to-date highs. Nvidia’s recent decline is primarily due to Trump’s tariff threats, but we view this as temporary. We anticipate a shift from training-led to inference-led AI models will be a significant growth driver for Nvidia. Additionally, AMD and Intel are expected to benefit, with Intel receiving support through the CHIPS Act grants. We believe this sector still has at least another 1.5 years of growth ahead before reaching saturation.

In particular, Nvidia’s earnings this past quarter have demonstrated high demand for its new Blackwell chips, which are essential for advancing AI technologies. This bodes well for its long-term potential, and we see continued opportunity for buying at lower points. Overall, we remain optimistic about the semiconductor sector’s trajectory and believe it will continue to be a crucial component of our portfolio’s growth.

While ARM and Qualcomm have lagged due to factors like softer iPhone demand, we believe these are temporary setbacks. Both companies present buying opportunities, particularly with ARM down about 40% from its peak. Despite recent challenges, we remain optimistic about the semiconductor sector’s trajectory and believe it will continue to be a crucial component of our portfolio’s growth.

Commodities Sector

In our commodities sector, we’ve observed oil prices for WTI crude holding within a floor of around $68 per barrel. While the sector has not yet borne significant fruit, and other commodity holdings like lithium miners and Brazilian steel exporters haven’t significantly boosted our returns yet, we continue to monitor these positions closely. Oil has provided a modest uplift, with an overall increase of about 15-20% over the past two years.

Looking forward, we are optimistic about the potential for mining stocks like Albemarle to rebound, driven by the upcoming demand from China for electric vehicles. Furthermore, we anticipate that a Trump-led economy could boost global commodity consumption, providing a long-term tailwind for this sector.

Japan Sector

Japanese holdings have rebounded significantly since their August 5th lows and are now comfortably in the green. Our largest Japanese holding, SoftBank, is expected to benefit greatly from its AI investments, including a new $1.5 billion stake in OpenAI shares.

Additionally, Japanese consumer electronics names are rebounding with increased consumption and inflation. The yen’s depreciation against the dollar offers an extra 30-35% return on top of local currency gains, providing an additional boost to this segment.

Regional and Investment Banks

Investment bank holdings like Goldman Sachs and Morgan Stanley have performed well since Trump’s election, driven by expectations of deregulation, lower short-term rates, and increased tech-led mergers and IPO activities.

Regional banks are nearing their price targets, with some, like Western Alliance, already liquidated to reinvest in semiconductors and cybersecurity. Schwab, a standout performer, is expected to enter the spot crypto trading market, bridging regional banking and blockchain opportunities.

Closing Thoughts

Birkoa’s disciplined approach and technology-driven focus have enabled us to deliver superior, risk-adjusted returns. November’s exceptional performance highlights our ability to navigate market complexities and capitalize on emerging opportunities.

We remain committed to maintaining this momentum and look forward to sharing a more comprehensive update, including our 2025 outlook, in the year-end newsletter.

Sincerely,

Pranjit K. Kalita
Chief Investment Officer
Birkoa Capital Management