September, 2023
The Fund returned -0.5% after fees in September. Global Indices were down: Nasdaq - 5.8%, S&P500 -5.0%, Russell2000 -7.1% and the Global Lithium Index fell -7%. Local Indices were also down: All Ords AI -2.8% and Small Ords AI -4.0%. Spartan, Surge, Lithium Power and Chalice (short; took profits) performed well for the Fund, but were offset by declines in Leo Lithium, Bravo and Lindian.
The Fed kept the cash rate unchanged in September, but ongoing hawkish rhetoric has markets pricing in one more hike. Yields continue to be the story, with the US 10-year rising to 4.8% (16-yr highs). Oil rose 6% whilst Uranium prices rallied +23%, breaking 12-yr highs. A strengthening US$, up +2.5%, drove falls in Gold -4.7% and Silver -9.3%. Lithium prices declined -23% to US$20,000/t (inventory destocking), now cutting into the cost curve of high-cost producers. Rare Earth prices were up +4% as China kept domestic mining and separation quotas for 2H-CY23 unchanged.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Fund-2023-09.pdfAugust, 2023
The Fund returned -1.1% after fees in August. Global Indices were down: Nasdaq -1.6%, S&P500 -1.8% & Russell2000 -5.2%. Local Indices were also down: All Ords AI -0.7%, Small Ords AI -1.3% and ASX300 Resources AI -1.8%. Azure, Wildcat (took profits) and Adriatic performed well for the Fund, however were more than offset by declines in Patriot, WR1, WA1 and Alvo. Lithium prices declined -25% with the Global Lithium Index at -11%.
Despite China’s growth concerns, its EV sales are expected to grow ~37% in CY23, representing ~36% market penetration. Leaders BYD Auto and Tesla are >55% of the EV market. BYD sold a record 274.4k EV’s in August, have been delivering on growth expectations, and are now guiding for 60% EV penetration in China in CY25, implying 30% yoy growth.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Fund-2023-08.pdfJuly, 2023
The Fund returned -3.8% after fees in July. Global Indices were up: Nasdaq +3.8% & S&P500 +3.1%. Local Indices were also up: All Ords AI +3.0%, Small Ords AI +3.5% and Small Resources AI +0.1%. Azure, Snowline Gold and Wildcat performed well for the Fund, however were more than offset by declines in Patriot, Solis and Berkeley. The Fed raised the cash rate by 25bps. Inflation continues to roll over, down to 2.9% from 9.1% a year ago. Gold rose +2.4% and Silver +8.7%. Lithium prices corrected -7% to -17%. Pleasingly the Fund has had a strong start to August.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Fund-2023-07.pdfJune, 2023
The Fund returned an estimated +4.7% after fees in June and +5.2% for FY23. Global Indices were up: Nasdaq +6.5%, S&P500 +6.5% and Russell2000 +8.0%. Local Indices were mixed: All Ords AI +1.9%, Small Ords AI 0% and Small Resources AI -1.2%. Azure, WA1 and Greentech performed well for the Fund, partially offset by declines in our precious metals holdings. The Fed paused at the June FOMC, keeping the cash rate unchanged. We suspect their hiking cycle is done. The US$ fell -1.4%. Gold fell -2.2% and Silver -3.3% on hawkish Fed rhetoric of two more 25bps rate rises this year. Oil was up +3.1%, as was Copper +2.9%. Lithium prices were unchanged.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Fund-2023-06.pdfMay, 2023
The Fund returned +5.7% after fees in May. Global Indices were mixed: Nasdaq +7.6%, S&P500 +0.3% and Russell2000 -1.1%. Local Indices all fell: All Ords AI -2.6%, Small Ords AI -3.3% and Small Resources AI -7.1%. WA1, Leo Lithium, Patriot and Meteoric performed well for the Fund, partially offset by declines in PointsBet and our precious metals holdings. The US$ rose +2.6%, with falls in Gold -1.4%, Silver -6.3%, Oil -8.7% and Copper -6.0%. Chinese Lithium prices continued their strong bounce, with futures +110% off their mid-April lows to ~US$40,000/t. China's EV ownership is now 15m+ units, 4.7% of 319m vehicles in China, and growing rapidly.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Fund-2023-05.pdfApril, 2023
The Fund returned an estimated +2.0% after fees in April. Global Indices were up: Nasdaq +0.5% and S&P500 +1.5%. Local Indices were up: All Ords AI +1.8%, Small Ords AI +2.8%. ASX300 Resources AI was down -2.2% and Global Resources SPDR ETF was down -7.1%. Meteoric and our gold stocks performed well, offset by declines in Winsome, Sierra Rutile and Hartshead. The US$ fell -1% with Gold +1% higher and Silver +4% higher. Oil was flat and Copper -5.5% lower. After significant falls off November highs, Chinese Lithium prices look to have bottomed, with futures +40% off their lows to US$30,600/t – almost twice what the equities are discounting.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Fund-2023-04.pdfMarch, 2023
The Fund returned 1.1% after fees in March. Global Indices were up: Nasdaq +9.5% and S&P500 +3.5%. Local Indices were down: All Ords AI -0.2%, Small Ords AI -0.7%. Resolute Gold and Adriatic performed well for the Fund, offset by a decline in Patriot.
Global markets were volatile in March as a result of two sizeable US bank failures. Fear of contagion saw a run on some regional US banks. Credit Suisse, which has been in trouble for the last decade, had a forced takeover for a nominal amount by UBS. The escalating banking crises saw the US and Suisse Central Banks respond by securing deposits, providing guarantees and ample liquidity. This saw the US 2yr bond rate (which leads the cash rate) fall 80bps to 4.1%. The Fed raised rates by 25bps to 5% at its March FOMC, with the market rapidly moving to price in 100bps of rate cuts in 2H-CY23. The US$ fell, sending gold higher. Lithium prices continued their correction off November highs, with majors using the short-term weakness to pursue M&A.
This month we discuss the recent M&A interest in Lithium developers and what it may mean for Patriot Battery Metals.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Australian-Long-Short-Fund-Monthly-Update-March-2023-Paragon-Funds-Management.pdfFebruary, 2023
The Fund returned -11.1% after fees in February. Global Indices were down: Nasdaq -0.5% and S&P500 -2.6%. Local Indices were also down: All Ords AI -2.5%, Small Ords AI -3.7% and Small Resources -9.1%. It was a very tough month for Resources with average equity declines in precious metals -18%, Copper -15%, Nickel -13%, EV -12%, Uranium -12% and bulk commodities -8%. The Fund had declines in its Lithium, precious metals and base metals stocks, and Platinum AM was also sold off on its 1H23 result.
Global markets were sold off on tight labour markets and high inflation, as well as a hawkish Fed calling for more cash rate rises and remaining higher for longer. The USD bounced, sending commodity prices lower. Commodity markets remain constrained from a supply perspective and coupled with a golden age for demand = a Supercycle is coming.
This month we discuss Lithium’s short-term headwinds and its 2023 supply, demand and price dynamics.
File:January, 2023
The Fund returned +13.1% after fees in January. Global Indices were up: Nasdaq +10.6% and S&P500 +6.2%. Local Indices were also up: All Ords AI +6.4% and Small Ords AI +6.6%. Patriot Battery Metals, Leo Lithium, Capstone and Resolute Gold performed well for the Fund, partially offset by declines in our precious metals stocks.
Inflation continued to roll over from mid-2022 highs, after the release of a softer US CPI for December. The Fed slowed their rate rises to 25bps in February as expected, guiding for more moderate rate rises throughout this year. We continue to believe a pause on rate rises is nearing. Previous major headwinds are turning into tailwinds, with the US$ and credit spreads both rolling over. China’s re-opening continues to be the biggest driver for Resources markets, with metals prices strengthening.
This month we provide an update on two of our key holdings, Patriot Battery Metals and Adriatic Metals.
File:December, 2022
The Fund returned an estimated -9.5% after fees in December. Global Indices were down: Nasdaq -9% and S&P500 -6%. Local Indices were also down: All Ords AI -3.3% and Small Ords AI -3.7%. Our Lithium producers and developers were sold-off as Lithium spot prices corrected by 10%. The sector was impacted by Tesla falling -37% (-65% for 2022) which continues to drive sector sentiment despite its own unique set of issues and the rapid ramp-up of EVs across all car manufacturers. Inflation continued to roll over from mid-year highs after the release of a softer US CPI for November. The Fed slowed their rate rises to 50bps in December as expected. Despite this, a ‘risk-off’ sell-off in global markets occurred, driven by Powell’s hawkish guidance for more moderate rate rises and keeping them at restrictive levels until the Fed’s inflation fight is done. China continued its gradual re-opening, resulting in iron ore and base metals having solid bounces off their lows. Gold and silver continued to perform on slowing rate rises and a falling US$.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Fund-2022-12.pdfNovember, 2022
The Fund returned +3.1% after fees in November. Global Indices were up: Nasdaq +4.4% and S&P500 +5.4%. Local Indices were also up: All Ords AI +6.4% and Small Ords AI +4.9%. Patriot Battery Metals, Adriatic and Winsome performed well for the Fund, partially offset by declines in our Lithium developers. Market optimism continued to build around inflation peaking after the release of a softer US CPI for October.
The Fed is also likely to slow the level of rate hikes in its December meeting to 50bps, with Chairman Powell recently providing a more dovish stance. Markets and Resources were also buoyed by expectations of China gradually re-opening from COVID-driven lockdowns. After months of drifting lower, Iron Ore and base metals had solid bounces off their lows. Gold was up on a dovish Fed and a falling US$. Lithium futures prices corrected from highs whilst spot prices were marginally up, causing volatility across the Lithium equities.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Fund-2022-11.pdfOctober, 2022
The Fund returned -2.1% after fees in October. Global Indices were up: Nasdaq +4% and S&P500 +8%. Local Indices were also up: All Ords AI +5.7% (led by strong moves in the Banks), Small Ords AI +6.5% and Resources AI +1.4%. Pilbara and Life360 performed well for the Fund, however they were offset by declines in Patriot Battery Metals, Red Dirt Metals and AJ Lukas(AJL). Despite the EU energy crisis and AJL’s huge gas potential, we exited the position after a change in government saw the UK reimpose a moratorium on gas fracking. Outside of Lithium, Oil and Gas, commodity prices are being impacted by falling demand caused by China’slockdowns. We believe these will end soon, given their economy is suffering as a result. Markets bounced in October, likely a function of overly bearish sentiment and positioning, coupled with dovish comments from a couple of Fed members on the forward path regarding US interest rates.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Fund-2022-10.pdfSeptember, 2022
The Fund returned -3.4% after fees in September amid another volatile month globally. Global Indices were all down significantly: Nasdaq -10.6%; S&P500 -9.3% and Russell2000 -9.7%. Local Indices were also down: Small Ords AI -11.2%, All Ords AI - 6.4% and Small Resources AI -13.5%. Lithium producer Pilbara performed well for the Fund but this was offset by declines in our Battery EV mineral developers. Markets sold off heavily following the Fed’s 16th of September FOMC meeting. Whilst the cash rate increase of 0.75% was expected, the Fed’s hawkish outlook statement of further rises of up to 1.5% by the end of the year (to combat inflation) was 1% higher than previous guidance. The Fed wants to get the cash rate to core PCE inflation, which printed 4.9% in August compared with its peak in June at 5.4%. With US$300T+ of global debt, we believe central banks can only go so far before something breaks. If/when it does, the Fed will intervene, driving a ‘risk-on’ rally.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Paragon-Fund-2022-09.pdfAugust, 2022
The Fund returned +3.7% after fees in August. Global Indices were all down: Nasdaq - 5.2%; S&P500 -4.2% and Russell2000 -2.2%. Local Indices were up: Small Ords AI +0.6% and All Ords AI +1.3%. Our Lithium holdings performed well with Canadian-listed Patriot Metals (PMET) the standout, offset by declines in Novonix, PointsBet and American Rare Earths. Markets sold off in response to the Fed’s hawkish comments about ongoing interest rate rises to combat inflation. Markets are currently pricing in a 75bps cash rate rise later this month. We continue to believe the Fed can only go so far in order to avoid a hard economic landing, before they pause (or pivot) which will set off a big market rally. Inventories across oil, base and battery-EV metals continue to be very low.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/191170509.pdfJuly, 2022
The Fund returned -0.5% after fees in July. Global Indices were all up from oversold levels following overly bearish sentiment: Nasdaq +12.5%; S&P500 +9.1% and Russell2000 +10.4%. Local Indices were also up: Small Ords AI +11.4% and All Ords AI +6.3%; with the ASX300 Resources AI down -0.5%.
Concerns about China’s growth contributed to a decline in commodity prices, which drove the underperformance of resource stocks. Our lithium holdings with the exception of Leo Lithium performed well but were offset by our base metals and gold holdings. Following another high US inflation print at 9.1%, the Fed hiked the cash rate by 0.75% to 2.5% in July. Global markets rallied as the Fed’s outlook comments were more dovish, with their future actions no longer on a pre-set path and to be economic ‘data dependent’. Markets continue to price another two 50bps cash rate rises this year, with cuts starting in 2023. In our view, a Fed pivot is approaching near term, where resources and particularly precious metals should do very well.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/189909747.pdfJune, 2022
The Fund returned -16.4% after fees in June amid another violent ‘risk-off’ sell-off. Global Indices were down materially: Nasdaq -9.0% (now 32% off its highs); S&P500 - 8.4% (now in a bear market having fallen >20%) and Russell2000 -8.4%. Local Indices were also down materially: Small Ords AI -13.1%; All Ords AI -9.4% and the Small Resources Index -22.1% (its worst month since Oct 2008, the worst month of the GFC). Global markets were impacted by another high US inflation print at 8.6%, the Fed aggressively hiking the cash rate by 0.75% (the first increase of this size since 1994 and signalling more rate rises of 0.5%-0.75% if needed to reduce inflation), and Coviddriven lockdowns in China (which have since started to unwind). Shorts in Evolution Gold, AEF and EV-related stocks performed well, however only partially offsetting the declines across all our longs. We believe the bulk of our performance damage is done. We have lowered net exposure significantly, reducing our portfolio to core holdings only.
In responding to high inflation, the Fed continues its increasingly hawkish stance in an attempt to break inflation and its psychology. Recession fear has driven equity market sentiment to extremely bearish levels, nearing GFC lows. Whilst positive from a contrarian viewpoint, a Fed pivot (or simply pausing on rate rises) will mark an important inflection point and should be a key catalyst in positive market trajectory, flows and liquidity. China continues to loosen its monetary policy to promote its own economic recovery, important for Resources demand.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/189094298.pdfMay, 2022
The Fund returned -16.0% after fees in May due to another violent ‘risk-off’ sell-off. Global Indices were down materially intra-month then ending mixed: -1.7% (Nasdaq), 0% (S&P500) and 0% (Russell2000); Local Indices were down: -7.0% (Small Ords AI) and -3.1% (All Ords AI). Global markets once again encountered extreme volatility (90th percentile), this time from an increasingly hawkish Fed and Covid-driven lockdowns in China – both impacting equity market sentiment and flows. Stanmore performed well, however the bulk of our portfolio holdings were down.
In responding to high inflation, the Fed has been moving the goal posts for the past couple of months, signalling several more 50bps rate rises with rapid speed. Whether simply ‘jawboning’ as an attempt to break inflation psychology or their genuine intent, the Fed is rattling markets and making investing difficult in the short-term. If the Fed pivots, or simply pauses on rate rises at their September FOMC meeting as they recently intimated, then this could mark an important inflection point and positive trajectory in markets. In trying to support its economy impacted by lockdowns, and after months of rhetoric, China has since announced stimulus measures at ~2% of their GDP. Whilst small compared to previous downturns, this is expected to be followed by additional targeted stimulus. Note the lockdowns have started unwinding.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/188011847.pdfApril, 2022
The Fund returned -3.3% after fees in April. Global Indices experienced large declines: - 13.3% (Nasdaq), -8.8% (S&P500) and -10.0% (Russell2000); Local Indices only modest declines: -1.5% (Small Ords AI) and -0.8% (All Ords AI). Global markets encountered extreme volatility arising from the Fed’s increasingly aggressive tightening rhetoric in response to high inflation, fears around China’s ‘covid-zero’ policy and risk of further lockdowns, and the ongoing sell-off in technology stocks. Stanmore, Lithium Power and Firefinch performed well for the Fund, however were more than offset by declines across our precious and base metals holdings. Whilst markets fret over US cash rate rises, the real Fed funds rate (cash rate less US CPI - below) is in record negative territory, a tailwind for resources and precious metals – as it was in the 1970’s.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/187078448.pdfMarch, 2022
The Fund returned +23.7% after fees in March. Global Indices were all up: +4.2% (Nasdaq), +3.6% (S&P500) and +1.1% (Russell2000); as were local Indices: +5.3% (Small Ords AI) and +6.9% (All Ords AI). The Fund’s strong performance largely came from 9 stocks individually returning more than +1% attribution. These included Sayona and Ionic (now taken profits in full in both), Firefinch, Lithium Power, Woodside and Stanmore.
March quarter (1Q22) was wildly volatile, with the Fund returning -7.4%. Global Indices also fell for the quarter: -5% (S&P500) to -9% (Nasdaq); local Indices fared better: -4.2% (Small Ords AI) and +1.6% (All Ords AI). It was a frustrating quarter as we got the call on the commodities right, with so many commodity prices continuing to hit multi-year or alltime highs. However, with the risk-off caused by a hawkish Fed in late January, followed by panic selling in February from Russia’s invasion of Ukraine, only mega-cap resources performed well, which we tend not to own.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/186224578.pdfFebruary, 2022
The Fund returned -12.8% after fees in January, a direct result of the violent ‘risk-off’ sell-off in the 2nd half of the month. Global Indices were all hit: -8.5% (Nasdaq), -5.3% (S&P500) and - 9.7% (Russell2000), as were local Indices: -9.0% (Small Ords AI) and -6.6% (All Ords AI). Global markets encountered extreme volatility, initially from the ongoing sell-off in long-duration technology stocks, which then spilled over to the rest of the market after an increasingly hawkish Fed responding to high inflation (FOMC on 25th January). Political tensions between the USA and Russia over their Ukraine-invasion threats added to the volatility (although any invasion and then sanctions would be very good for Oil, Palladium and Nickel). Lithium Power (LPI) was our only real winner, along with our shorts, with the balance of the portfolio correcting amid the global sell-off.
Rising rates environments favour value, cyclical, and resources stocks, where the latter in particular act as a great inflation hedge. Strong absolute and relative outperformance from resources can be seen in various historical examples including the 1970’s and 2002+. In addition, in every rate hike cycle since 1972, commodities have returned +19% and outperformed the S&P500 by +9%. As discussed in our monthly updates and recent webinars, over the past 6-9mths, we have been actively decreasing exposure to technology stocks and increasing exposure to resources including nickel and ‘old-energy’ oil.
Investor sentiment at the end of January was at historic pessimistic levels (see chart 1 below by Fundstrat) and at extremely oversold levels - rivalling both the 4Q18 Fed-driven and 1Q20 Covid-driven market bottoms. Whilst we’re aware of the nervous narrative around the Fed possibly making a monetary policy error (by going too far with cash rate rises and QT), they haven’t done anything yet and are still printing money until 30 March 2022!
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/183914752-1.pdfJanuary, 2022
The Fund returned -12.8% after fees in January, a direct result of the violent ‘risk-off’ sell-off in the 2 nd half of the month. Global Indices were all hit: -8.5% (Nasdaq), -5.3% (S&P500) and - 9.7% (Russell2000), as were local Indices: -9.0% (Small Ords AI) and -6.6% (All Ords AI). Global markets encountered extreme volatility, initially from the ongoing sell-off in long-duration technology stocks, which then spilled over to the rest of the market after an increasingly hawkish Fed responding to high inflation (FOMC on 25th January). Political tensions between the USA and Russia over their Ukraine-invasion threats added to the volatility (although any invasion and then sanctions would be very good for Oil, Palladium and Nickel). Lithium Power (LPI) was our only real winner, along with our shorts, with the balance of the portfolio correcting amid the global sell-off.
Rising rates environments favour value, cyclical, and resources stocks, where the latter in particular act as a great inflation hedge. Strong absolute and relative outperformance from resources can be seen in various historical examples including the 1970’s and 2002+. In addition, in every rate hike cycle since 1972, commodities have returned +19% and outperformed the S&P500 by +9%. As discussed in our monthly updates and recent webinars, over the past 6-9mths, we have been actively decreasing exposure to technology stocks and increasing exposure to resources including nickel and ‘old-energy’ oil.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/183914752.pdfDecember, 2021
The Fund returned +0.5% after fees in December. Global Indices initially corrected – impacted by Omicron, a hawkish Fed accelerating QE tapering, likelihood of 3x cash rate rises in 2022 and a high US CPI print of +6.8%. As anticipated, these factors were already priced in, with markets then rallying and ending the month higher, +2.6% (Nasdaq) to +5.6% (S&P500). Local Indices also recovered to finish up +1.4% (Small Ords AI) and +2.7% (All Ords AI). Positive contributors were from our battery EV minerals holdings Firefinch, Prospect (received a US$378m takeover offer for its Lithium asset) and Syrah, and our short in Magellan (FUM downgrade), offset by declines in Mawson, QPM and Adriatic.
The Fed has printed excessive amounts of money since the beginning of the pandemic and is now trying to control the inflation problem this created. US monetary and fiscal stimulus now exceeds a staggering US$10t in <2 years. Excess liquidity was evident all year, with global equities inflows at US$1t+, exceeding the combined total for the past 19 years! Precious metals, base metals, energy and battery EV commodity prices are all rallying (Lithium prices breaking all-time highs, up >400% in CY21 to US$40,000/t) as their strong micro (fundamentals) supersede headwinds from the macro (tapering, rising US$, China growth concerns). Collectively representing strong tailwinds for our Fund going into 2022.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/182659111.pdfNovember, 2021
The Fund returned +0.5% after fees in November. Global Indices were down: -0.8% (S&P500), -3.7% (Dow) and -4.3% (Russell2000); Local Indices were marginally down: -0.3% (Small Ords AI) and -0.3% (All Ords AI). News of the omicron variant impacted what would have otherwise been a solid month, with volatility rising and the VIX jumping to 27 in the last week of the month. Positive contributors included our precious metals and Lithium holdings, offset by declines in our Industrials and base metals holdings.
Fed Chairman Powell finally acknowledged that inflation is not ‘transitory’, ie. likely to be persistent. Also, hawkish comments to possibly fast track the taper schedule by ~3 months saw the USD index rise +2.0% to 96.0, a short-term headwind for Resources and the ‘risk-on’ rally. Battery EV minerals nevertheless continue to strengthen. Lithium prices broke all-time highs, with Rare Earth and Nickel prices also at cycle highs. Nickel inventories continue to fall and are rapidly approaching critically low levels, setting the scene for materially higher Nickel prices
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/181787053.pdfOctober, 2021
The Fund returned -3.6% after fees in October. Global Indices rebounded in October: +6.9% (S&P500), +7.3% (Nasdaq) and +2.5% (Russell2000); Local Indices were marginally up: +0.9% (Small Ords AI) and +0.2% (All Ords AI). Positive contributors were Sunstone, 360 and Cannindah, more than offset by declines in QPM, EML and Atomo. Five of our top 10 holdings raised capital in October at discounts of 7-15%. Despite substantially de-risking their growth profiles, all pulled back to the issue price. We expect all 5 stocks to continue re-rating once passed the typical 4–6 weeks capital raise ‘indigestion’ phase.
‘Risk-on’ rally indicators were aplenty in October, including US inflation expectations hitting +2.8% (+22bps - see below), FX at A$0.75/US$ (+4.6%), Brent Oil hitting 3.5yr and post-Covid highs of US$84/bbl (+6.5%), Copper and Nickel rallying (both rising ~10%), Bitcoin hitting alltime highs (+35%), the VIX falling to 16.3 (-30%), and record liquidity (global equities loggedUS$1t+ of inflows during the last year, 4x larger than the next best annual inflow!). Moderatesized M&A continued in Lithium development assets, including: 1) a 3-way bidding war
between China’s Ganfeng, CATL and Lithium Americas, all pursuing Millennial Lithium; 2) Zinjin Mining’s takeover of Neo Lithium; 3) Ganfeng’s 50% acquisition of Firefinch’s Goulamina; 4) Sibanye-Stillwater’s 50% acquisition of Ioneer’s Rhyolite Ridge; and 5) Sayona’s 60% acquisition of Moblan. Importantly, we are yet to see large-scale Lithium M&A – such as a mega-miner acquiring a leader like Albemarle - and are confident we are still some time away from a potential top in the Lithium cycle. We remain excited by our key themes and outlook
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/180945098.pdfSeptember, 2021
The Fund returned +0.1% after fees in September amid yet another volatile month for global equities. Global Indices were all down on a suite of macro concerns/noise: -4.8% (S&P500), -5.3% (Nasdaq) and -3.1% (Russell2000); Local Indices were all down: -2.1% (Small Ords AI), - 1.6% (All Ords AI) and -6.7% (ASX300 Resources). Positive contributors were Queensland Pacific Metals (QPM), Cettire, Ioneer, Sayona and our shorts in DeGrey and other golds, offset by declines in Mawson, Chalice and our technology holdings. The Fund delivered +22% for 3Q21 and +48% for CY21 to date, outperforming all relevant benchmarks by 20-40%
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/179796209.pdfJuly, 2021
The Fund returned -7.9% after fees in June, caused by a market overreaction explained further below. Despite this, the Fund achieved +43.6% for FY21, well ahead of the market’s +30.3%. Pleasingly, this will translate to our highest distribution payment since the Fund’s inception, for which ~50% is re-invested including what’s invested by Paragon’s management and directors. Global Indices were up: +2.2% (S&P500), +5.5% (Nasdaq) and 0.1% (Russell2000), however gold indices were down a bruising -14%; Local Indices were up: +3.1% (Small Ords AI) and +2.6% (All Ords AI). Positive contributors for the Fund were Sayona, Cettire and Queensland Pacific Metals, more than offset by declines in Chalice and our precious metals and copper holdings.
The Fund was impacted by the Fed’s mid-June FOMC meeting hawkish turn, responding to rising inflation, despite their narrative for it to be ‘transitory’. The Fed brought forward expectations of 2 cash rate increases to 2H-CY23 (from CY24) and indicated they may start the discussion regarding potential tapering of their (US$1.2t annualised) bond buying program. This caused the US$ index to bounce +3% off its lows to 92.2, driving a sell-off in most commodities, precious metals and related equities. Gold and silver were down -7.8% to US$1,770/oz and -6.8% to US$26.13/oz respectively.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/175013004-1.pdfJune, 2021
The Fund returned -7.9% after fees in June, caused by a market overreaction explained further below. Despite this, the Fund achieved +43.6% for FY21, well ahead of the market’s +30.3%. Pleasingly, this will translate to our highest distribution payment since the Fund’s inception, for which ~50% is re-invested including what’s invested by Paragon’s management and directors. Global Indices were up: +2.2% (S&P500), +5.5% (Nasdaq) and 0.1% (Russell2000), however gold indices were down a bruising -14%; Local Indices were up: +3.1% (Small Ords AI) and +2.6% (All Ords AI). Positive contributors for the Fund were Sayona, Cettire and Queensland Pacific Metals, more than offset by declines in Chalice and our precious metals and copper holdings.
The Fund was impacted by the Fed’s mid-June FOMC meeting hawkish turn, responding to rising inflation, despite their narrative for it to be ‘transitory’. The Fed brought forward expectations of 2 cash rate increases to 2H-CY23 (from CY24) and indicated they may start the discussion regarding potential tapering of their (US$1.2t annualised) bond buying program. This caused the US$ index to bounce +3% off its lows to 92.2, driving a sell-off in most commodities, precious metals and related equities.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/175013004.pdfMay, 2021
The Fund returned an estimated +0.4% after fees in May and +65% over 12 months, substantially ahead of the market’s +30%. Global Indices were mixed: +0.6% (S&P500), -1.2% (Nasdaq) and 0.1% (Russell2000); Local Indices were up: +0.3% (Small Ords AI) and +2.0% (All Ords AI). Positive contributors for the Fund were Chalice, Cettire, Caspin and Adriatic, offset by declines in Ionic, Betmakers and our base metals holdings. The Fund remains highly liquid, with a median market cap of $923m for our top 15 holdings.
US 10yr bond rates and US inflation were next to unchanged at 1.59% and 2.56% (7-yr highs) respectively, with real rates resuming their downtrend and falling -8bps to -0.84%. The US$ index fell -1.6% to 89.4, closing below the key ‘90’ support level. Gold and silver were up +7.8% to US$1,907/oz and +8.1% to US$28.03/oz respectively. Copper was up +4.4% to US$4.68/lb and Iron Ore was up +9.5% to US$208/t, both breaking record highs. The VIX continued its ‘riskon’ downtrend falling 10% to 16.8, a new month-end post Covid-19 low. Biden released his
first annual budget plan at US$6t, substantially unfunded with deficits approaching 20% of US GDP. Every commodity is a winner in this environment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/172625547.pdfMarch, 2021
The Fund returned -6.2% after fees in March amid yet another highly volatile month for equities globally. Global Indices were up +4.2% (S&P500) to +0.4% (Nasdaq), with local Indices mixed - +0.8% (Small Ords AI), +1.8% (All Ords AI) and -4.1% (ASX300 Resources). Whilst the major indices continued to rise there was unprecedented turbulence below the surface. Positive contributors for the Fund were Cettire, Betmakers and Chalice, more than offset by declines in Ionic, Adriatic and other Resources holdings.
The VIX fell by 17% to 19, the first time it has fallen below 20 since the COVID-19 spike. US 10yr bond rates continued to rise, +34bps to 1.74%, with US inflation rising 21bps to 2.49% (to 7-yr highs). The 2–10 yield curve steepened 31bps to 1.58%, providing fuel to the procyclical value stocks. The US$ index increased +2.4% to 93.2, whilst gold and silver were down -2.7% to US$1,708/oz and -8% to US$24.42/oz respectively.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/171427544.pdfNovember, 2020
The Fund returned +1.2% after fees in November. Global Indices were up strongly, +10.8% (S&P500) to +18.3% (Russell2000), the fear index fell 46% to 20.6 (VIX) and gold equities dropped -6.0% (GDX). Despite COVID-19 cases hitting record highs and lockdowns in Europe and the USA, news of vaccines with high efficacy rates drove a massive rotation from precious metals and growth stocks into value/cyclical ‘old-economy’ stocks.
The US election saw Joe Biden become President-elect, Republicans retain the Senate and the Democrats just holding the House - which means a gridlocked Washington. Local Indices too were strong, +10.3% (Small Ords AI) and +10.2% (All Ords AI), the latter seeing its highest monthly move in 30yrs+, driven by a +17% move in the banks. Positive contributors for the Fund were Pilbara, Chalice and PolyNovo, offset by declines in our gold and technology holdings.
Market rotations are hard to pick/time, in any case are temporary in nature. Our outlook remains constructive. Despite the US$ Index breaking new 2.5yr lows down -2.3% to 91.9c and US real rates falling - 9% to -0.84%, US$ gold was down -5.4% to US$1,777/oz on vaccine news and on delays of the next US fiscal stimulus bill. Copper hit 7yr highs, up +12% to US$3.42/lb, Brent Oil up +27% to US$47.59/bbl, both great tailwinds for our base metals and oil stock picks.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/162910993.pdfticker: PGF0001AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.paragonfunds.com.au/monthly-updates/
asset_class: Domestic Equity
asset_category: Australian Long Short
peer_benchmark: Domestic Equity - Long Short Index
broad_market_index: ASX Index 200 Index
structure: Managed Fund
manager_contact_details: Array
fund_features:
Australian long-short equities absolute return fund, focusing on core competencies in the resource and industrial sectors. The Fund deploys a high conviction, long bias strategy, focusing on proprietary, fact based research. This fundamental bottom up stock selection, coupled with a global macro perspective to actively manage market risk, places capital preservation as a key objective of the Fund. The Fund aims to deliver a capital growth over a 3-5yr time horizon.