MAXIN GLOBAL FUND - USD is a Long / Short Directional hedge Fund incorporated in Luxembourg. It started trading on February,22 2022 and replaces MAXIN ADVISORS' MODEL PORTFOLIO which has been trading since January 1st 2014.
MAXIN GLOBAL FUND / MODEL PORTFOLIO
Gross Performance
– 10.58 % May 2023
– 24.62 % Year To Date
+ 788.58 % Since Inception
+ 26.11 % Per Annum CAGR 9.42 Years
NAV 988.58 ( Base 100 )
MAXIN GLOBAL FUND – USD Standard Class C
Net Performance
Risk Metrics and Performance Contribution
( Active Portfolio )
Manager’s Comments
OUR WORST LOSING STREAK AND WORST DRAWDOWN
The first five months of 2023 ended up being our worst streak of losing months in 10 years of management with 5 consecutive months of losses and a -25.35 % cumulative downdraft for MAXIN GLOBAL FUND – USD.
Although the downdraft of first three months of the year were perfectly in line with our expectations, we have been taken wrong-footed in March and April by the irrational extension of the bear market rally in European stocks on one hand, and the irrational exuberance of the US technology sector and AI craze that culminated with NVIDIA’s historical jump on the release of its earnings and guidance for the future of AI.
We are certainly to blame and have made a number of mistakes during the period that are important to assess and correct for the future.
Our main mistake has been to privilege our fundamental analyses and conclusions instead of respecting the momentum of trends, however irrational they seemed and still are in our views. As we detailed many times in our analyses, the current macro-economic and geo-political environment is one of the most treacherous we have seen in decades, and we remained short equities when we should have simply stayed out if we did not want to go long. But as detailed in our analyses we felt the political risks due to the war in Ukraine, the macro risks and the exuberance of the Western markets.
Our second mistake was to have too many individual positions and to actually increase the sensitivity of our portfolio in mid-April, adding a layer of individual risks to the global layer of macro positioning. This was particularly detrimental in the US, where we were concentrated n the highly expensive and over-extended technology stocks and in China where we re-entered the market too early.
Finally, we re-entered Chinese equities too early as our macro-analysis contradicts the view of the mainstream western economists that have been touting and end to the recovery, while all our indicators are telling us that the economy is growing strongly and that industrial profits are recovering precisely now. Contrary to mainstream analysts who were out of China in Q4 2022 and then became hyper bullish China at the beginning of the year, raising their growth estimate even above the Governments targets, we had gone long China in September / October and reduced our exposure in December and January, having always warned that the recovery would be more muted and patchy than expected by the consensus.
As a result the last down leg of April May took a toll on our performances but we see it as the last leg one of the most bullish formation that can be had with the formation of both a higher low and an inverse head and shoulder that will propel Chinese equities into the second stage of their secular bull market.
In May, and due to our downdraft we have cut a lot of our individual positions both long and short but those losses are not permanent. As we expected, the European stock markets and within them, the luxury sector, has now turned decisively and this segment ion our portfolio is now becoming a positive contributor. In the US, now that the AI craze is losing its momentum with the final melt-up, the markets are turning and it is only a question of time before all the mega caps turn down form extremely elevated and over-extended positions, and even in NVIDIA, where the AI craze forced us to cut almost at the high, we already re-entered the trade in the last day of the month, meaning that we have not lost hose monies permanently.
In China, we have reduced our exposure and cut many individual positions, but are already gradually positioning ourselves on the long side, waiting for the bottom confirmation to increase exposure.
One of our strategic positioning is Gold and Silver where we have taken advantage of the current correction to build sizeable exposure as we see precious metals as one of the most promising trade in the coming months, and we are very long volatility.
Strategically, the exuberant extension of the Q4 bear market rally in a very limited number of stocks has not changed our roadmap at all. If anything, it has confirmed it. Now that the US technology stocks have ran out of steam and that European equities have turned, we see Western equity markets falling significantly into the summer, with the likelihood of a mini-crash in August. The SP500 is trying to break above 4’200, the US Nasdaq is deeply overextended, the Dow Jones Industrial and Russell 2000 are extremely weak and Industrials are on the verge of a major breakdown.
On the macro side, the European economies have started contracting, the momentum of the US economy is fading since March and the US leading indicators are pointing to a recession ahead. Core inflation remains resilient in the US, with a labor market that remains strong although with cracks starting to appear, and in Europe as well, with both the FED and the ECB still focused on taming inflation.
Our scenario of a shift from the “inflation fears” of 2022 to “Recession fears” in 2023 is unfolding as expected and the current environment of High inflation, high interest rates and contracting economies is the worst possible environment for highly elevated equity markets.
Investors hoping for a soft Landing, no landing and a quick pivoting of central banks will be disappointed and their bets that corporate earnings will rebound sharply ahead will prove misplaced. Morgan Stanley’s models that have been tired and tested for many years show that the consensus of analysts is off the mark by at least 20 % and that the earnings recession is not over, leaving equity valuations at unsustainable levels.
China is recovering and it momentum will accelerate in the second half of the year. We expect the Government and the PBOC to boost the economy through stimulative policies to counter the sharp fall in inflation rate, and to allow the Yuan to continue depreciating to further the competitiveness of Chinese exports in a world in global contraction. Where we differ form Western analysts is that we see China’s growth to be very much self-centered, with Chinese consumers privileging Chinese products to foreign products and the Chinese having far less appetite for luxury goods and flashy signs of wealth.
The geo-political scene is also fraught with risks, with the war in Ukraine seeing a heightening of tensions where we do not exclude an escalation of the war with the sue of Tactical Nuclear Weapons, and the US – China tensions will continue to simmer until the Biden administration gives clear signs of a will lift its unilateral sanctions or until the Taiwanese elections in January 2024. In the mean time, any military mishap in the South China Sea could lead to a situation of direct confrontation between their militaries.
The US Dollar has turned, an additional negative headwind for European stocks, US bonds are giving signs of bottoming out, barring an unexpected failure of the debt ceiling to pas the senate, the energy complex is bottoming out and gold is setting itself for a sharp move towards 2’400 and possibly 2’700 before the end of the year.
Despite our negative showing of the beginning of 2023, we are highly confident that MAXIN GLOBAL FUND – USD will end 2023 with the same level of positive performances we have achieved in the past, as irrational phases do not last.
Portfolio Details
Asset Allocation
Transaction List
May 2023
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