20 08/21 20/08/2021

Weekly Newsletter Week 33

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WEEK 33 | AUGUST
WEEKLY NEWSLETTER

 

OVERVIEW

  • Financial Markets & EconomiesRetracting
  • Good to knowMargin Debt at Record High
  • Your portfolio highlightsSolar Value Fund, Atlas Corp
  • In other news: Brookfield Said to Plan $1 Billion U.S. Student-Housing Venture, Warren Buffett Stocks: What's Inside Berkshire Hathaway's Portfolio?, Aramco in advanced talks with India’s Reliance Industries on deal worth up to $25 billion
Financial Markets & Economies

The Federal Reserve is planning on winding down its asset purchases in about 3 months and to completely end the program mid-2022. The asset purchase program was initiated to stimulate the economy by holding down long-term interest rates and encourage borrowing and spending. The program served its purpose and should be ended as the economy recovers said Fed officials. Ending the asset purchase program means that the Fed is able to raise interest rates to curb increasing inflation.

U.S. markets were on a decline this week after hitting several all-time highs this year (48x for the S&P500). Some believe this may be due to the Fed’s tapering announcement which had its effect on a global level as European and Asian markets declined as well. Some specific assets such as copper were also on a decline due to the recent economic slowdown in China. China is the world’s second largest commodity importer. A slowdown in the Chinese economic recovery means a slowdown in commodity import. This hypothesis led some investors to shy away from commodity.    

 
Good to Know

According to recent publications margin debt is at a record high. Margin debt is when investors borrow money from their brokersbroker using their investment portfolio as collateral. Investors typically use margin debt to trade securities (at amounts higher than their cash levels) or to get cash without having to sell their investments. Either way, investors taking on margin debt are optimistic about the market or their specific holdings.

Borrowing always comes at a risk, especially in brokerage accounts. As markets or certain holdings fluctuate, the portfolio value may drop to levels lower than the margin requirements. This triggers a margin call. Margin call is when the loan amount becomes too high compared to the value of the assets securing the loan. The investor must add money to the investment account or sell some of the holdings in the account to satisfy the margin requirements.


Take all of the above in consideration, a record high margin debt level can give different indications. For starters, investors are (overly) optimistic about the market or their specific holdings. It can also indicate that unfavorable market conditions can easily send markets into a selloff if investors are unable to fund their accounts. In other words, it may negatively affect investors with or without margin debt alike. It is by strategizing over the possibility of these adverse developments that one can better prepare so to minimize impact or perhaps even profit from the situation in case it occurs.

 
Your Portfolio Highlights
 
 
The Solar Value Fund (SVF) invests in about twenty American publicly traded equity securities with an emphasis on individual security selection based on thorough fundamental analysis rather than general equity market movements. The Fund concentrates its research and capital on undervalued, mid-cap companies chosen from a carefully defined universe of quality industrial and consumer products and services companies. The Fund has a performance of +21.64% year-to-date. In the highlight this week is Atlas Corporation. Atlas Corp returned +32.22% year-to-date at the time of writing and +59.29% since purchase.

Atlas Corporation (NYSE: ATCO) is a leading global asset management company that differentiate itself by positioning as a best-in-class owner and operator. The focus is on capital deployment in order to create sustainable shareholder value. Atlas has an experienced asset management team with extensive operational and capital allocation experience. The company targets long-term, risk adjusted returns across high quality infrastructure assets in the maritime sector, energy sector and infrastructure sector. The two main portfolio companies are Seaspan Corporation and APR Energy Limited. These are unique, industry-leading operating platforms in the global maritime and energy spaces.

Seaspan is the largest independent owner and operator of containerships in the world. The company has an industry-leading, fully integrated operating platform that delivers unique and differentiated value to customers through a full life-cycle asset management approach. Seaspan has a fleet of 127 containerships, 32 vessels under construction and 4 second-hand vessels to be delivered in 2021. Their operating fleet has an average age of 7.9 years and an average remaining charter period of 3.9 years. Seaspan is well-positioned for sustainable long-term growth thanks to their resilient business model, attractive fleet, high-quality customer base, and financial strength.

APR Energy Limited is the largest mobile gas turbine fleet owner and operator in the world. The company provides power solutions to customers such as large corporations and governments. APR is the global leader in its asset class and offers a fully integrated platform where one can lease and operate its fleet. The company owns 9 power plants in 5 different countries with a ~900MW installed base. They also have ~850MW of mobile gas turbines and ~550MW of diesel generators.

Atlas Corporation as the holding company is valued around $17 a share. This means that despite the year-to-date price increase and the price increase since purchase, there is still good upside potential.

 

*Please visit the Atlas Corporation website for more information or click on one of the images below for their latest presentation.

Atlas Corporation - Year-to-date Stock Price Movement
In Other News
 
We wish you a pleasant weekend and hope you stay safe.

Kind regards, 
Shernel Thielman 
Investment Manager 

www.solar-asset.com | shernel@solar-asset.com 
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