The Futurus portfolio was down 17% in 1Q22, underperforming the Nasdaq considerably (-10%). This is primarily explained by a sharp drop in oil, wheat, and other commodities at the start of the Ukraine invasion. I believed and still do, that commodities will continue to rise driven by sanctions on Russia, the invasion as well as structural investment /capacity deficit. However, I was caught very long in a market correction. Futurus should see a reduction in its Etoro risk rating during 2Q22 as I exited futures trading.
The strategy uses leverage or margin (about 1.6x) to augment returns and is thus volatile. I have restructured since the start of the year by eliminating tech and high growth/high valuation stocks such as Mercado Libre, Globant, Nvidia , Zscaler to name a few, on my belief that US/ECB will raise rates faster and farther to combat inflation. Higher rates negatively impact valuation. see report.
If/when inflation begins to decline, I may move back into tech as the market prices in an eventual limit to rate levels as well as the probability of hard or soft landing (recession). Long term trends in cybersecurity, electric vehicles, renewables, and internet of things should resurface.
Apart from commodities (oil, fertilizer, and mining) the strategy is short US bonds via TMF, has taken a large position in Neste Biofuels, Defense (Military spending in EU) and consumer staple (tobacco). The position in Santander is driven by its global footprint (UK, EU, US and Latam), cheap valuation and benefits from rinsing rates despite low loan growth.
My bottom-up analysis points to 40% upside for Futurus with limited downside (9%).