New article pulished in the Bull – Stocks that are going cheap
As part of our regular contribution to financial website The Bull Shawn has written an article this month about some stocks that he feels are good value in the current market that would also hold up well through a double dip recession. Click here to read the article
Managed Accounts Share Trading Notification – FMG Purchase
Good afternoon,
On Friday we purchased a position in Fortescue Metals Group (FMG) at just under $4.20 per share. The purchase brings our market exposure to around 70% with 60% of this amount protected with put options.
There has been a lot of economic reports released over the past two weeks, the results of which have changed our opinion to the positive for the broader prospects for equity markets. Almost without exception, economic data has been ahead of consensus expectations.
Managed Accounts Share Trading Notification – WPL Purchase
Good afternoon,
last Friday, the position in we held in Woodside Petroleum was re-purchased at $42.78 for our Managed Accounts. The rational behind this particular investment is the same as when it was first transacted on two months ago. WPL has a rising production profile and the price of crude oil and natural gas is expected to rise over the long term so the base fundamentals of WPL are very solid.
Managed Accounts Put Options Purchase
Good afternoon,
yesterday we purchased Put Options for 1.5% of the portfolio. In essence, this purchase protects approximately 40% of the managed discretionary accounts portfolio against a fall in the market between now and December this year. Our portfolios are currently invested to approximately that same level. Should we be presented the opportunity to accumulate more quality, good value holdings, we feel it is prudent to be at least partially covered.
As it stands, the data coming out of the US and Europe is still very mixed, even after a 2 day rally in the DOW the market remains on tenterhooks. The story that has people’s attention can be summed up by a recent headline: “You can’t fix a debt problem with more debt”.
This is exactly the issue we had flagged to you over previous weeks, and for the time being if the market continues to fall we will be net beneficiaries of that fall. As always should the market fall we will be looking for opportunities to add quality stocks to our portfolio at value levels.
We will keep you updated, however in the mean time if you would like to speak with us about anything please call the desk.
Managed Accounts 2nd Quarter Performance Update
A very quick update to let you know that our average performance for the quarter was -0.77%. Over the same period the ASX 200 index was down by -11.2%. This means we beat the index by 10.43% for the quarter and has brought our outperformance since inception to an all time high of 25.12%
Options Make Money – If You Manage Them Well
Options are powerful investment instruments, where both risks and returns can potentially be much greater than share trading. The trick is in using them to maximise upside, whilst limiting the downside.
- Forming a View on Market / Stock Direction
- Bear Strategies
- Bull Strategies
- Neutral Strategies
- Covered Calls
- Stop or Trailing Losses
Buying many types of options without a clear strategy is akin to placing a bet on the roulette wheel. It may give some thrills, but you might find you run out of capital rather quickly. Options are tools to either manage, or take advantage of expected future movements in a stock / stock market’s direction. It is essential that an investor has a strong opinion, or conviction that a certain event or price movement (or lack thereof) is likely to unfold, before they trade in options.
Long Puts – Put options give the buyer the right (but not the obligation) to sell a particular security, at a particular (“strike”) price, before a given date in the future. In a falling (or “bear”) market, this is a popular strategy, with the only risk being to the capital invested in the option. The more the underlying security falls, the more you profit. A bear put spread, where one buys a put at a higher strike price, and sells a put at a lower strike price, is an even lower risk strategy, albeit less profitable. Bear call spreads are a similar low risk strategy.
Long Calls – Call options give the buyer the right (but not the obligation) to buy a particular security, at a particular (“strike”) price, before a given date in the future. In a rising (or “bull”) market, this is a popular strategy, with the only risk being to the capital invested in the option. The more the underlying security rises, the more you profit. Bull call spreads and bull put spreads are essentially bear call spreads and bear put spreads in reverse (as a bull has an opposite market view to a bear). These are low risk, but low return strategies.
In a choppy market, with no trend either up or down, neutral option strategies can be employed. A “collar” can protect, or possibly profit from an underlying stock position. Several other strategies like “straddles”, “strangles”, “butterflies” and “condors” exist. Be clear on how they work, and their relative risks before employing them.
Selling or “writing” covered calls allows the seller (writer) to collect the option premium for giving the buyer the right to purchase your underlying stock at a given (“strike”) price, before a given date. You are “covered” because you own the underlying stock, otherwise you would be “naked”. If your stock trades above the strike price, it is highly likely that you will be obligated to sell your stock to the covered call buyer. You have been compensated for this by the premium they have paid to you for the option, and also possibly by the rise in your stock to the strike price. If the stock doesn’t reach the strike price, you keep your stock, and the covered call premium paid to you is yours to keep.
There are numerous options trading strategies. If you venture into higher risk strategies, be sure to manage the risk. Installing a stop loss, or trailing loss allows you to minimise your losses if a trade moves in the direction you are not expecting.
There are additional factors at play, such as the time decay of options, which has been excluded for simplicity. Options trading requires significantly more observation and active management than investing in managed funds. Have a clear strategy before trading to protect your capital.
William Shaw contributes to www.thebull.com.au
Shawn Uldridge – our Head Equities Strategist here at William Shaw Securities is a regular contributer to www.thebull.com.au
Periodically we are asked to contribute 6 share trading recommendations; 2 buy, 2 Hold and 2 Sell. Some of these recommendations are shares that we trade for our managed accounts, while others are not. The format requires that we give two recommendations in each category. Click here to read Shawn’ recommendations.
Risks and Rewards – Why Realism Pays in Managed Funds
Investors can be seduced by headline attractive return rates for some managed funds. A cool head and a longer term outlook are valuable assets when considering a managed fund investment.
Click Here To Read More
Managed Accounts Investment Notification – Sale of BHP and WPL
Good afternoon,
After much discussion, today we made the decision to sell our holdings in the most volatile and macro-sensitive stocks we hold, BHP and WPL. BHP made +4.5% and WPL +5.5% before costs, which has added a gross 1.55% to the value of the total portfolio. Our Managed Accounts are now 40% invested in the market and 60% in cash.
While the decision to sell was a littler earlier than we had initially targeted, we still want to maintain a high level of caution in the market as it accelerates on the upside. The market reached 4610 points or thereabouts after touching a low of 4200 just one month ago, and this represents a 20% total move (10% down and then back up again). We targeted 4650 in any case, and 40 points is not a lot, considering that volatility.
One more major piece of information which may turn investor attention; an emergency Budget of the new British Coalition Government will be released 9:30pm our time tonight (June 22nd), in which, apparently “life changing” and “inevitably painful” cuts will be announced to tackle the growing UK debt. We’re aware that major news like this could possibly turn attention back to events in Europe, and weaken the market into June 30 rather than strengthen it as we would have expected.
From within 40-90 points of our target range, we now consider it prudent to reduce exposure to the market, and lock in further profits.
If you would like to speak with me about anything at all, please call the desk.
Talk soon,
Shawn Uldridge and Hayden Kerr.
Managed Accounts Investment Notification – Sale of AIO
Good afternoon,
On Friday we made the decision to sell our holding in Asciano Group for our Managed Discretionary Accounts, at a gross profit of 11% in just under four weeks. As the market nears our target range of 4650-4700, we are selling into the strength and taking profits where they are available. In our portfolio, only LLC is underperforming and we are happy with our other holdings for the time being.
Since purchase of AIO and GPT, the domestic market has been strong, as expected. At this point we see further upside running into the end of financial year as institutions window dress investment performance, which would allow us the opportunity to do some further selling.
There are other positive factors at play here which give us cause to be optimistic in the short term.
• The Australian Dollar, after touching a low of 81c two weeks ago has now rallied back to nearly 88c. In terms of pure market analysis, sudden flows into or out of the Australian Dollar can be commonly attributed to changing investment flows and can and do accompany a corresponding move in the share market. While the AUD is strengthening the share market will probably follow suit.
• European events took center stage over the past few weeks. The issues that had the world’s focus have not gone away; these are serious economic concerns which we have outlined in the past. The big ‘BUT’ here is that the Euro has been strengthening against the US Dollar of late, reaching $1.24 from $1.19 two weeks ago. This suggests that the short-term focus of financial markets is no longer on the Sovereign debt problems of Europe but on more positive economic facts:
• China is talking about dropping the Yuan peg against the US Dollar. This is due to the world economic recovery, and domestic Chinese economic strength. Importantly, that kind of talk (and action presumably) is positive for the Australian economy and by extension our currency and stock market.
• End of financial year reporting. Any redemptions made out of large managed funds are likely to be paid out of cash reserves rather than selling stock into the market for the next week. Long-only fund managers want to show the best possible end of year performance, and this is a great way to assist this process along.
• In the last two weeks, there has not been nearly as much written about the sovereign debt crisis as was written in the two weeks before. This issue is definitely taking a back seat to ‘Global Recovery’ stories. Read all about it – news in the US, Australia, China and even some European countries like Germany has not been all bad. Granted, it’s not been especially good either but on balance the stability is positive for markets.
We’re aware of the major headwinds to global growth, and the risks facing the economy. We certainly continue to have some concerns regarding the transfer of debt from the private sector to the public, and the ‘quantitative easing’ policies that brought this about. For the time being, though, our market is performing well.
