Responsible Investor is a weekly newsletter and an Apple/Spotify podcast for those who are interested in investing responsibly. Go to responsibleinvestor.dk for more information and to read our disclaimer. This week’s newsletter is titled “Is Silicon Valley Bank the new Lehman Brothers?” and was written on March 11th, 2023.
Weekly summary in a paragraph
Last week’s rally already seems like a distant memory as US stock market indices tanked 4% or more this past week. Europe was no different as were most indices around the globe. The bank sector was hit the most as the Silicon Valley Bank seizure constitutes the first major bank failure since the Great Financial Crisis in 2008 and spreads contagion fears. To make things worse, the jobs report published on Friday came in hotter than expected with the only glimmer of hope consisting in a slightly softer average hourly cost. Money is flowing from the stock market to bonds and this is sending yields lower. The news of Xi’s re-election in China did not provide anything incremental. In Europe the ECB confirmed its resolve to ramp up Quantitative Tightening this summer with the terminal rate now expected at 3.75%.
Asset classes weekly performance
This week the Dow finished -4.4% lower (-3.7% year to date) and the S&P500 lost -4.55% (+0.6% year to date), the Nasdaq gave up -4.7% (+6.4% year to date) and the Russell 2000 tanked -8.1% (+0.7% year to date). Gold finished higher +0.98% (+0.57% year to date) while Silver lost -2.51% (-15.6% year to date). Oil was -4.7% weaker (0.8% year to date). The 10-y US treasury yield finished -7.23% lower (-2.58% year to date). The European stock market gave up -3.1% (+10.1% year to date). The Euro finished +0.15% higher against the US Dollar (-0.64% year to date).
Investors were spooked by the concerns over a classic run on the bank at retail investor-darling SVB Financial Group. Its size is too small to be compared to the Lehman Brothers, however, perhaps a more appropriate comparison would be with Bear Sterns whose fall was the notable predecessor of the GFC. It is too early to assess how far the impact of this failure will affect the sector. Useful signs may come from the US regional banks who are smaller in size compared to the likes of Goldman Sachs and JP Morgan. Certainly the mismatch between bank assets and liabilities in terms of duration is a key concern. Should the contagion spread, the Fed would have no choice but to lower interest rates to relieve the pressure on the credit market. Next week the all-important CPI and PPI reports are due which will provide a further update on the direction of inflation. We beat the market by 2% this week thanks to our hedges and are now 9.4% ahead of the S&P500 over the last 12 months.
Weekly Portfolio Update
Here are this week’s movements: we took profits on Alcoa (+9.3%) and Old Republic International (+12.6%) as well as on our short position in Johnson & Johnson (+5.8%); we initiated new long positions on an Healthcare ETF and a US Banks ETF (we always start with 0.5% of our portfolio and then add to it if the stock goes up); sell stops were triggered on our Snap short position and on Thor Industries. Cash, precious metals and hedges amount to 42% in our portfolio (increased compared to last week).
Top 5 Weekly Portfolio Performers
Proshares UltraPro Short Russell 2000 ETF +27.39% (3 times inverse the Russell 2000)
iPath Series B S&P500 VIX ETF +21.40% (Volatility ETF)
Proshares UltraPro Short Nasdaq ETF +11.84% (3 times inverse the Nasdaq)
Proshares Short S&P500 ETF +4.77% (1 time inverse the S&P500)
Proshares Short Nasdaq ETF +3.81% (1 time inverse the Nasdaq)
Portfolio Asset Allocation
US Long stock positions 49% (reduced)
EU Long stock positions 9% (increased)
Short stock position 2.5% (unchanged)
Hedges 6.5% (unchanged)
Silver & Gold 5% (increased)
Cash 28% (reduced)
1-year Portfolio Performance
Our portfolio performance over the last year (12 months) is +0.1% (excl. dividends) vs the S&P500 loss of -9.3%, which corresponds to a +9.4% market beat.
…in case you missed it…
Check out our first 2023 weekly newsletter to read the 5 things I got right in 2022…and the 5 I got wrong.