Like Sylvester Stallone’s boxer
character Rocky, our Options
Portfolio has taken a battering in
recent times, but is still on its
feet and poised for a recovery.
It suffered a 6.2% fall in November,
following a smaller drop the
previous month. A similar situation
applied to the other related
products, the Options Kiwi Fund and
the Capital Guaranteed Bond.
Extreme turbulence in long-term
interest rates in November took its
toll. US 10-year rates fell by over
100 basis points (1%) in the month,
an unprecedented move and completely
unexpected. It is yet another sign
of the highly volatile nature of
investment markets, with wild swings
on an almost daily basis. For
example, in one day alone in
mid-November the Portfolio shed 15%.
It is a credit to the competence of
the team at Tyndall that the net
result for the month was a mere 6%
drop.
Tyndall has been actively managing
the Portfolio and its many options
contracts, varying both the spread
(how many basis points each contract
covers) and the duration. They say
they have never experienced anything
like this before. US rates are now
at very low levels as the ‘flight to
quality’ continued, but are probably
at or near the bottom of their
range.
In Tyndall’s view, the positive side
of volatility is that the risk
premiums they are able to earn are
now significantly higher. Once the
volatility settles down, they expect
a sustained period of high premium
income to the fund. Exactly this
situation occurred at the beginning
of the year: a poor January was
followed by six months of superb
returns.
Taking the wider picture, the
Portfolio has come through the
crisis better than many other
investments:
-
It still achieved a
positive return for the year to 30
November, of plus 2.74% after tax.
-
In comparison, the
NZX50 dropped 33% and the MSCI even
more, nearly 45% in US dollars. Only
the drop in our dollar relative to
the US dollar, which offset some of
this fall, mitigated what has been a
disastrous year in general.
The Options
Portfolio update for November is now available on the Adviser Centre Website -
just
click here.