05 11/21 05/11/2021

Weekly Newsletter Week 44

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WEEK 44 | OCTOBER
WEEKLY NEWSLETTER

 

OVERVIEW

  • Financial Markets & EconomiesBlack Gold
  • Good to knowLabor Shortage
  • Your portfolio highlights Solar US Bond Fund, Bristow Group, Markel
  • In other news: Reliance Industries aims to launch its budget 4G smartphone jointly developed by with Google, Brookfield Completes Transition of Non-traded REIT from Oaktree, Brookfield Unit Hires Former Regulator to Expand Life-Insurance Business
Financial Markets & Economies

The U.S. stock market keeps marching up. This is despite the Federal Reserve’s announcement that it will begin tapering its bond purchases later this month and the fact that this may lead to an interest rate hike. Rate hikes are on the rise globally with New Zealand and South Korea being the most recent countries to have done so.

In China, the factory activities declined for two consecutive months as raw material prices skyrocketed and economic demand slows. The first economy to recovery from the pandemic is now showing signs of contraction. The stagnant economic activity couples with rising inflation are also a sign of stagflation


Oil prices as we know it have been on the rise and more than doubled this year. The strong price increase of the black gold benefitted oil companies greatly as their earnings reports show. Saudi Aramco for instance grew profit by 160%. This is evidence that stocks of the companies that extract and/ or mine raw materials are likely to grow at a higher rate than the material itself.

 
WTI Crude Oil - 1 year stock price movement
Good to Know

Due to the economic reopening we are now facing labor shortages in different parts of the world. Just as the demand for workers is rising there are many workers retiring or others voluntarily quitting their jobs. Besides the changing demographics, border controls, immigration limits, and demand for better pay and flexible working arrangements are also contributing factors. Although the pandemic accentuated these variables, most of them are pre-pandemic problems. According to the ING Bank, labor shortages may persist for a while. This means that companies must increase their pay offers to attract and/ or maintain employees. They must also work on company moral, training, and customer satisfaction since these are in turn affected by the labor shortage.

The sectors most affected by labor shortages are accommodation and food services, government education, and wholesale trade. American Airlines for instance had to cancel more than 1,400 flights this past weekend due to weather storms which was further exacerbated by the labor shortage. The labor shortage is also a cause of the supply chain disruptions besides the lack of raw materials. The labor shortage and supply chain disruptions together hamper the global economic growth. The demand is there but there is not enough supply and workers. This leads to lower economic output and inflated prices.

 
 
Your Portfolio Highlights
 
The Solar USD Bond Fund (SUBF) as the name states is a fixed income fund investing primarily in high yield corporate bonds and preferred shares of U.S. issuers. These issuers all have a minimum S&P rating of CCC. The fund may also invest in other USD denominated fixed income funds. The Solar USD Bond Fund aims to generate a stable long term cash flow which are reinvested. The Asset Allocation is diversified into different asset classes, market sectors and maturities of industrial and consumer products and services companies. The Solar USD Bond Fund analyzes the credit quality of the issuer, the issuer's potential for success, its credit rating, the economic risks and the current and potential future valuation. The fund returned +1.41% so far in 2021. The best performing position in the fund for the month of October was Bristow Group.
 

Bristow Group Inc. is a global leader in offshore helicopter operations and provider of flight solutions. The Company provides aviation services to the oil and gas companies, and commercial, public and private sector search and rescue (SAR) services. Bristow’s fleet consists of about 256 aircraft, of which 240 are helicopters. The company has a diverse customer base and end markets, a strong balance sheet and good cash flow generation, and is good in value enhancement by way of cost synergies.

For diversification purposes we like to look for companies with a global presence and that surf multiple end markets. Bristow had $1.3 billion in revenue these last 12-months with 50% of its sales coming from Europe, 33% from the U.S., 11% from Africa, and 6% from Asia. As for end markets, 74% of the sales came from the Oil and Gas industry, 19% from government services, 6% from fixed wing, and 1% from other operations. The company’s strategic priorities are to become more efficient, focus on cash flow generation and financial stability, consolidate to create value, and to leverage core competencies to enter new markets.     


*Please visit the Bristow Group website for more information or click on the image below for their investment presentation.

 
 
Markel Corporation reported their Q3 financial results, and they did well. Earned premiums grew by 17% in the quarter and 15% in the first 3 quarters of the year. This growth was due to new businesses and higher rates. The combined ratio dropped (which is good) from 97% in Q3 2020 to 93% in Q3 2021 and from 101% in the first 3 quarters of 2020 to 91% in the first 3 quarters of 2021. This is due to a lower current accident year loss ratio and the favorable pricing environment.

Markel witnessed a substantial increase in its investment gains so far this year. This is attributed to the favorable market movements during the year. The company went from a $230,896 loss at the end of Q3 2020 to a $1,288,887 gain at the end of Q3 2021. Operating revenues from Markel Ventures operations and comprehensive income to shareholders both increased for the period. All by all, the company had splendid performance so far this year. According to CEO Tom Gayner, Markel is well positioned to end the year strong. Analyst consensus is that the stock price is likely to cross the $1,400 mark in the next 12 months.

 
In Other News
 
We wish you a pleasant weekend and hope you stay safe.

Kind regards, 
Shernel Thielman 
Investment Manager 

www.lunarasset.com | shernel@lunarasset.com 
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