08 10/21 08/10/2021

Weekly Newsletter Week 40

Newsletter week 40...




  • Financial Markets & EconomiesThe Rotation
  • Good to knowSemiconductor Shortage
  • Your portfolio highlights Lunar Value Fund, Ocean Yield ASA
  • In other news: Warren Buffett said it was ‘a mistake’ to have a debt ceiling a decade ago, Brookfield to Host Third Quarter 2021 Results Conference Call, Although PwC Offers Full-Time Remote Work to all its employees, it will honor its lease commitments with Brookfield
Financial Markets & Economies

Markets were on a decline yet again at the beginning of the week as investors were rotating out of technology and communication services stocks into energy, utilities, and financials. This pressure on technology stocks is attributed to the rising interest rates. Facebook was hit even harder than its peers because of the worldwide outage of its social media applications. On top of that Facebook is also dealing with the fact that a former employee turned whistleblower testified about the company’s products and services.

As stock market indices were on a decline, bond yields and oil prices were up. Yields on the 10-year Treasure note rose to above 1.54% and oil prices crossed $78 per barrel which is its highest level since 2014. The transition we witnessed this week should remind us that investors seek safer assets in times of uncertainty. These assets may not grow as fast as their higher risk counterparts, but they do offer reasonable growth for the amount of risk taken.

Crude Oil Price - 1 Year Price Movement
Good to Know

Computer chips, also known as semiconductors, are used in millions of products around the world ranging from smartphones to cars, washing machines, refrigerators, LED bulbs and more. As technology develops and more devices become smart, so does the inclusion of semiconductors in products. We have been dealing with a global shortage of semiconductors for a while now. There simply is not enough semiconductors to meet industry demand.

As the law of supply and demand states, a shortage of supply puts upward pressure on prices. The final products are so scarce sometimes that their waiting times can be 12 months or more. This supply shortage led many companies to either slow or fully halt productions of certain products. Toyota and Ford are among the companies that had to slow down production. Since there is a shortage of new cars the demand for used cars spiked and so did their prices. What is actually going on?

This situation has been developing for years now according to industry experts. The pandemic was simply an addition to the already boiling problem. Technological developments in and by themselves are the cause for an increase in semiconductor demand. The rise of 5G in particular is one that spiked demand dramatically. The political decision made by the U.S. to ban the sale of semiconductors to the Chinese firm, Huawei, also contributed to a spike in demand for producers outside of the U.S. Other variables that contributed to the shortage/ delays were the piling up of semiconductors at the beginning of the pandemic, an atrocious winter storm in Texas, and a fire at a plant in Japan.

Why does this matter to investors? Since semiconductors are used in a wide range of products, the supply shortage disrupted productions in a wide range of industries. The industries most affected are the automotive, medical devices, home appliances, and consumer electronics industries. Companies likely to benefit from the semiconductor shortage are companies that produce machinery and tools for chipmaking and semiconductor players with their own fab capacity. Other beneficiaries are precious metals miners since semiconductors are mostly made out of copper and other metals such as palladium, aluminum, gold, and nickel. Different governments and companies around the world are working on possible solutions to the shortage. Whatever the proposed solution, it will take time.

Your Portfolio Highlights
The euro-denominated Lunar Value Fund (LVF) invests in European publicly traded equity securities. The emphasis is on selecting holding companies with solid track record when it comes to value creation. Holding companies are entities that exercises control over one or more additional companies and earn its money by collecting the dividends from the shares of the companies in which it owns a controlling interest. Holding companies are beneficial for entities that seek to grow through acquisition since it is both less expensive and less complicated than merger and consolidation. The Lunar Value Fund returned +13.36% so far this year. In the spotlight this week is Ocean Yield ASA (OSL:OCY)

Ocean Yield ASA, formerly known as Ocean Yield ASA, is a Norway-based ship owning company that invests within the oil-services and shipping industries. The company focuses on modern assets with long-term charters to solid counterparties and it has a significant contract backlog that offers visibility when it comes to future earnings and dividend capacity. This is of importance to the company since it strives to pay attractive dividends to its shareholders. Ocean Yield was established in March 2012 and was listed on the Oslo Stock Exchange in July 2013.

The Company invests heavily in the maritime sector with assets spanning from Floating Production Storage and Offloading (FPSO) to seismic, oil service and car carrier vessels. The company has ownership of one FPSO, the Dhirubhai-1, which is on long term charter to Reliance Ltd. They also own an offshore-construction vessel, the Aker Wayfarer, which is on long term charter to Aker Solutions ASA. On a long-term charter to Western Geco they have Geco Trito, a seismic vessel. Ocean Yield’s stock returned 81% over the last 12 months without accounting for dividend distributions which was yielding 4.61% yearly at the time of writing.

*Please visit the Ocean Yield ASA website for more information or click one of the images below for their latest presentation.

Dhirubai-1 @ the port of Sri Lanka
Ocean Yield ASA - 1 year stock performance
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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