It's been a busy start to 2024 for the portfolio, with quite a few changes as the macro develops and individual themes evolve.
As of writing (14 Feb) the YTD portfolio performance is up 6.0%, which is a good start albeit somewhat retrenched from a peak of 8.81% on 2nd Feb.
Changes:
Uranium
Following the Cameco earnings call on 8th Feb I sold a substantial amount of my uranium holdings at market open. The sector had overrun in recent months, with most forgetting that only in June prices were at $60/lb. Whilst I am still a short to medium-term bull, sector sentiment has gotten way too bullish. Cameco reminded the market quite loudly that they have a significant amount of reserves that could come online relatively quickly, they announced extension plans of Cigar Lake (most analysts had been working off Cigar Lake being shuttered in 2028) and confirmed they are producing lbs, mostly as expected, at McArthur River, again with some analysts highlighting potential difficulties in the ramp back up again. I saw the earnings call as needed water to douse the flames of overly high expectations of the sector being on one consistent trajectory straight up with no time for consolidation/reflection. I think the market is now likely to sit and reflect on the massive recent run in the spot price, which had exceeded long term pricing by almost $40/lb. Either spot will hover where it is and long term rates will come up to meet, or spot prices will come down to be closer to long term pricing. There is of course a small chance spot will not pause and just run, but I see that as an outside risk, and one I'm prepared to take given the immediate term downside risk is 25%. I will look to re-enter the trade (and it is now a trade, not an investment, prices are at incentive levels now) once spot is within $20/lb of long term pricing. Obviously there are some sizeable discounts with U.UN and YCA to consider, which may make this quite a short period on the sidelines. If spot runs without a proper pullback/consolidation then I am still happy with my current uranium position, what is left in my portfolio (now a total 8% position) is explorers with huge torque to a higher for longer U price. My return as of today in the uranium space since I entered in 2018 has been 775%, which has beaten my initial target of 500% (and probably the timeframe if I'm being honest) so I remain very pleased with the returns. I think it's too early to look to initiate outright short positions, but various Australian equities are valued at quite different levels to US/CAN plays, which leads one to consider a pair trade. However this disconnect has existed for several years, and at the moment I don't see a catalyst for the variance in valuations to be reduced so I'm keeping funds in cash. However, if the sector runs like lithium did then I will aggressively look to initiate short positions on mostly Oz equities.
More widely:
I have been selling through a portion of other holdings, mostly downsizing and I'm now sitting at 30% cash. I'm taking some money off the table after a strong run since September across all markets, and I expect the news flow to be more negative in the next few months than positive. I've also entered into a 4% (non-notional) short via OTM leaps on NVDA. The run in NVDA has left all reasonable forms of valuing a business a long way behind, and I think it is inevitable that a collapse in the share price will happen. What will be the catalyst, I'm not sure, which is why I'm being sensible with position sizing and timeframes on the leaps. Most expiry dates are Dec 26, so I have nearly 3 full years for the thesis to work out. I should get a 3-7x multiple on the premiums paid should it play out how I expect it to (a reversion to average multiples for a static hardware business). I may well be early, but I am happy to continue to roll this position forward until it pays off.
Comments