JANUARY 2021 INVESTMENT UPDATE - FOLLOW US MONTHLY INVESTMENT UPDATES @DOLFINHQ @DOLFINHQ
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Monthly investment updates
January 2021
investment update
Follow us
@DolfinHQ Dolfin @DolfinHQ @DolfinHQ
#DolfinResearch
Dolfin l 50 Berkeley Street l London W1J 8HA l info@dolfin.com l +44 (0) 20 3883 1800
Contents Authors
Simon Black
1. Performance Head of Investment Management
2. Macro James Gutman
Head of Investment Portfolios
3. Fixed income
Mikhail Trebunskikh
Portfolio Manager
4. Equities
Maksat Stamakunov
5. Special topic: Bitcoin Analyst
6. Appendix Adrian van den Bok
Senior Portfolio Manager
Geoff Wan
Analyst
Paul Nesteruk
Head of Product, Digital Assets
dolfin.com
Performance
Simon Black, Head of Investment Management
• We delivered strong risk adjusted returns despite the market volatility
• 8 out of 9 discretionary portfolios ended up beating their 2020 target return
• Q4 saw the increase in risk within our core equity component
#DolfinResearch
dolfin.comMonthly performance
As at end of December 2020
Portfolios Major indices and commodities
USD Conservative Balanced Growth Asset MTD
Monthly performance 0.62% 1.52% 2.27% MSCI World 4.27%
Target return 0.22% 0.32% 0.47%
S&P 500 3.84%
ARC Private Client Index 1.60% 2.60% 3.20%
Euro Stoxx 600 2.60%
FTSE 100 3.28%
EUR Conservative Balanced Growth
Brent $ 8.85%
Monthly performance 0.24% 0.64% 1.11%
Target return 0.10% 0.18% 0.35% Gold $ 7.15%
ARC Private Client Index 1.40% 1.80% 2.10%
Government bonds
10 year Nov-20 Dec-20
GBP Conservative Balanced Growth
US 0.842% 0.912%
Monthly performance 0.66% 0.95% 1.33%
Target return 0.18% 0.27% 0.43% UK 0.307% 0.196%
ARC Private Client Index 1.50% 2.10% 2.50% EU -0.572% -0.575%
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Eikon Refinitiv, Dolfin, ARC, January 2021. All returns quoted net of fees.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comYear to date performance
As at end of December 2020
Portfolios Major indices and commodities
USD Conservative Balanced Growth Asset YTD
Year to date performance 7.53% 9.22% 11.75% MSCI World 16.50%
Target return 2.75% 3.82% 5.87%
S&P 500 18.40%
ARC Private Client Index 7.30% 9.90% 12.20%
Euro Stoxx 600 -1.49%
FTSE 100 -11.55%
EUR Conservative Balanced Growth
Brent $ -21.52%
Year to date performance 1.71% 4.22% 7.23%
Target return 1.76% 2.78% 4.85% Gold $ 25.01%
ARC Private Client Index 2.70% 3.30% 4.60%
Government bonds
10 year Jan-20 Dec-20
GBP Conservative Balanced Growth
Year to date performance 7.90% 7.22% 8.63% US 1.910% 0.912%
Target return 2.42% 3.44% 5.53% UK 0.825% 0.196%
ARC Private Client Index 4.40% 4.80% 4.90% EU -0.187% -0.575%
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Eikon Refinitiv, Dolfin, ARC, January 2021. All returns quoted net of fees.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comAsset allocation
USD balanced model for the month of December 2020
USD
Asset 30 September 2020 31 December 2020
Cash & equivalent 3.00% 3.83%
Fixed income 77.40% 62.23%
Government 9.70% 13.37%
Investment grade 52.60% 32.79%
High yield 15.10% 16.07%
Equity 19.60% 33.94%
Global equities 9.40% 21.25%
Satellites 10.20% 12.69%
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Refinitiv Portfolio Analytics, Dolfin, January 2021
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comMacro
James Gutman, Head of Investment Portfolios
• Real economy is getting back to the (new) normal
• Markets have a strong bull market consensus, which is itself a risk
• Rates will be critical for keeping the rally going
#DolfinResearch
dolfin.comThe economy is returning to the realm of “normal”
The whipsaw in activity is fading, and activity is starting to become more predictable
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Goldman Sachs, Citibank, Dolfin, January 2021.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comMarkets have a established a strong consensus
Across markets, markets are positioned the same way – examples include short dollar and long equities
USD DXY NET SPECULATIVE LENGTH/OPEN AAII BULL/BEAR INDEX
INTEREST 50
80%
40
60%
30
40% 20
20% 10
0
0%
-10
-20%
-20
-40% -30
-60% -40
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: CFTC, AAII, Bloomberg, Dolfin, January 2021.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comHouseholds have savings to spend in the unlocking
This is thanks to the surge in government borrowing and a lack of opportunities to spend
USD Bn MONTHLY US PERSONAL SAVING USD Bn CHANGE IN US DEBT OUTSTANDING
REAL 2020 USD, SA REAL 2020 USD, 12M CHANGE
60 25000
50 20000
In 2020, US Business Household Government Total
households
40 accumulated an "extra" 15000
$185bn of savings
30 10000
20
5000
10
0
0
-5000
60
65
70
75
80
85
90
95
00
05
10
15
20
60
65
70
75
80
85
90
95
00
05
10
15
20
19
19
19
19
19
19
19
19
20
20
20
20
20
19
19
19
19
19
19
19
19
20
20
20
20
20
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: US BEA, US Federal Reserve, Bloomberg, Dolfin, January 2021.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comInflationary pipeline likely to build in the coming years
Substantial excess liquidity is the fuel, a shrinking output gap could be the spark
US M2 GROWTH, YOY Percentage US GDP OUTPUT GAP WITH FORECAST
Points
25%
6
4
20%
2
0
15%
-2
-4
10% -6
-8
5% -10
-12
0% -14
60
65
70
75
80
85
90
95
00
05
10
15
20
60
65
70
75
80
85
90
95
00
05
10
15
20
25
19
19
19
19
19
19
19
19
20
20
20
20
20
19
19
19
19
19
19
19
19
20
20
20
20
20
20
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: CBO, US Federal Reserve, Bloomberg, Dolfin, January 2021.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comYield curve is bear steepening, but real rates stable
Sell off in the 10yr matches inflation expectations
US REAL 10Y YIELD Percentage US 2s10s Yield Curve
Per Cent Points
6 3.5
Positive Real Yield Negative Real Yield
3.0
5 US 10y Yield US 10y Breakeven
2.5
4
2.0
3 1.5
2 1.0
0.5
1
0.0
0 -0.5
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Bloomberg, Dolfin, January 2021.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comGold and copper are signalling stress in rates
Markets may test the Fed’s resolve on the long end of the rates curve
6 COPPER/GOLD AND US 10Y YIELD 14 GOLD AND REAL YIELD
-1.5 2200
5 12 -1.0 2000
-0.5 1800
10
4 0.0 1600
8 0.5 1400
3
1.0 1200
6
1.5 1000
2
4 2.0 800
2.5 600
1 2
3.0 400
0 0 3.5 200
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
US 10yr Yield (LHS) Copper/Gold Ratio (RHS) Real 10y Yield (LHS, Inverted) Gold (RHS)
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Bloomberg, Dolfin, January 2021.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comBitcoin and the USD
Bitcoin shows early signs of a strong relationship to the dollar, which may prove similar to gold
BITCOIN VERSUS THE US DOLLAR
9.0 85
8.5 87
8.0 89
7.5 91
7.0 93
6.5 95
6.0 97
5.5 99
5.0 101
4.5 103
4.0 105
2017 2018 2019 2020 2021
BTC (LN, LHS) USD DXY (RHS, Inverted)
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Bloomberg, Dolfin, January 2021.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comDecember 2020 major asset class returns analysis
The case for dynamic asset allocation
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Global agg. High yield US equities US equities US equities UK equities EM equities EM debt US equities US equities
Higher
4.79% 18.65% 31.79% 12.69% 0.69% 19.16% 37.85% 2.63% 30.88% 20.73%
EM debt EM equities UK equities Global agg. EM debt High yield US equities Global agg. EM equities EM equities
4.33% 18.53% 18.43% 7.60% 0.20% 15.60% 20.16% -0.68% 18.82% 15.84%
High yield US equities High yield EM debt Global agg. EM equities UK equities High yield UK equities Global agg.
3.63% 15.33% 6.47% 4.53% -0.24% 11.75% 11.71% -2.81% 16.37% 8.26%
US equities Global agg. Alternatives High yield High yield US equities High yield US equities High yield High yield
1.36% 11.06% 6.29% 2.58% -0.69% 10.89% 8.17% -5.82% 13.34% 5.73%
UK equities UK equities Global agg. UK equities Alternatives Commodities Alternatives Alternatives Global agg. Alternatives
-1.83% 10.19% 0.07% 0.50% -1.54% 9.29% 4.76% -5.47% 12.51% 5.72%
Alternatives EM debt EM equities Alternatives UK equities Global agg. Global agg. UK equities Commodities EM debt
-6.18% 7.08% -2.26% -0.49% -2.21% 6.22% 5.74% -8.82% 9.41% 3.21%
Commodities Alternatives EM debt EM equities EM equities Alternatives EM debt Commodities EM debt Commodities
-8.26% 2.38% -2.48% -1.97% -14.61% 3.78% 3.63% -12.79% 8.47% -9.68%
Lower
EM equities Commodities Commodities Commodities Commodities EM debt Commodities EM equities Alternatives UK equities
-18.16% -5.86% -5.03% -17.92% -23.40% 3.28% 1.96% -14.22% 5.33% -13.23%
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Dolfin, Bloomberg, January 2021. US equities is represented by the MSCI USA Net Total Return index, UK equities is represented by the MSCI UK Net Total Return Local index, EM equities is represented by the MSCI
Emerging Markets Index, high yield is represented by the Bloomberg Barclays Global High Yield Total Return Index Value Hedged USD, commodities is represented by the Thomson Reuters Core Commodity index, EM debt is
represented by the Bloomberg Barclays EM Local Currency Government TR Index Value Hedged USD, alternatives is represented by the Hedge Fund Research HFRX Equal Weighted Strategies Index
January 2021 investment update | Letter to investors | Performance | Market backdrop | Fixed income | Equities dolfin.comMajor asset class and currency returns
As at end December 2020
BY ASSET CLASS BY CURRENCY
Alternatives RUB
Commo dities GBP
EUR
EM Equities
DXY
Global equities
ZAR
EM bonds
AUD
Global bonds
CAD
Inflation linked bonds NOK
-15% -10% -5% 0% 5% 10% 15% 20% -24% -19% -14% -9% -4% 1% 6% 11% 16%
YTD MTD YTD MTD
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Dolfin, Bloomberg. YTD and MTD as at end December 2020. Inflation linked bonds is represented by the Bloomberg Barclays Global Inflation-Linked Total Return Index Value Hedged USD, global bonds is represented by
the Bloomberg Barclays Global Aggregate Corporate Total Return Index Hedged USD, EM bonds is represented by the Bloomberg Barclays EM Local Currency Government TR Index Value Hedged USD, global equities is
represented by the MSCI World index, EM equities is represented by MSCI Emerging Markets Index, commodities is represented by Thomson Reuters Core Commodity index, alternatives is represented by the Hedge Fund
Research HFRX Equal Weighted Strategies Index.
January 2021 investment update | Letter to investors | Performance | Market backdrop | Fixed income | Equities dolfin.comFixed income
Adrian van den Bok, Senior Portfolio Manager | Geoff Wan, Analyst
• Inflation and supply is a bad combination
• US ETF flows exhibit clear risk-on sentiment
• Finding non-callable fallen angels with upside potential
#DolfinResearch
dolfin.comInflation and supply is a bad combination
Inflation expectations approaching 2% level – a tail risk
What could move US yields higher?
US INFLATION EXPECTATIONS VS FED HIKES
3 • Inflation expectations are moving higher
2.4 • immense fiscal and monetary stimulus
2.5
2.2 we have seen could create inflationary
2 pressures
2
1.5 • 1.9trn of net supply to be absorbed in 2021
1.8 • Earlier than expected Fed lift-off date if
1.6 1 growth comes in later in year
1.4 0.5
1.2 0 What keeps US yields in check?
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
• Lockdowns
• Mixed and highly variable economic data
US 5yr 5yr Breakeven Fed Target Rate Fed Funds Rate releases are likely to persist
• Accommodative policies from central bank
• support yield curve
• Investor demand for yield provides support
USD bn Expected Supply Redemptions Fed purchases Net Supply
Overall, expect VOLATILITY in rates
US 2021 4,562 1,660 1,000 1,902 • Maintain allocation to highly liquid, short-
term instruments to sell if attractive entry
US 2020 3,437 1,700 2,217 -480 points become available
Source: Dolfin, Citi Research
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comBuy and hold will not work with low starting yields
Active trading required – scenario analysis shows negative price movement destroys returns
TOTAL RETURNS FOR BENCHMARK BONDS BASED ON
EXPECTED TRADING RANGE FOR 2021 EXPECTED RANGES
2.00%
Period
Price Expected
1.50% US 10 year Price Yield change % Total Return
T 0 ⅞ 11/15/30
4th January 2021 level 99.64 0.91%
1.00% Top end of 2021 range 96.85 1.25% -2.80% -1.89%
Bottom end of 2001 range 98.52 1.05% -1.12% -0.21%
0.50% Top end Q1 range 98.855 1.00% -0.79% -0.56%
Bottom end Q1 Range 100.69 0.80% 1.05% 1.28%
0.00% Germany 10 year
DBR 0 08/15/30
4th January 2021 level 106.01 -0.61%
-0.50% Top end of 2021 range 101.74 -0.20% -4.03% -4.63%
Bottom end of 2001 range 102.62 -0.30% -3.20% -3.80%
-1.00% Top end Q1 range 104.81 -0.50% -1.13% -1.28%
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
Bottom end Q1 Range 105.8 -0.60% -0.20% -0.35%
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Bloomberg, Dolfin, January 2021.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comWhere are investors allocating?
US ETF flows shows appetite for credit risk but in shorter duration paper…
US ETF FLOWS: GOV VS IG VS HY US ETF FLOWS BY MATURITY BUCKET
200 60
50
150
40
100
30
20
50
10
0
0
-50 -10
0
20
0
0
0
20
0
20
20
0
20
20
21
0
20
0
0
0
20
0
20
20
0
20
20
-2
-2
r-2
-2
-2
t-2
-2
-2
r-2
-2
-2
t-2
b-
n-
g-
p-
v-
c-
n-
b-
n-
g-
p-
v-
c-
n
ay
n
ay
l
l
ar
ar
Ju
Ju
Oc
Oc
Ap
Ap
De
De
No
No
Au
Au
Ju
Ju
Fe
Se
Fe
Se
Ja
Ja
Ja
M
M
M
M
US Gov US IG US HY US Short Term US Intermediate Term US Long Term
Source: Dolfin, Bloomberg.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comCall me maybe?
Scarcity of callable bonds trading below call price
US HIGH YIELD BY MATURITY SCHEDULE ($ FACE VALUE OF US HIGH YIELD BONDS BY
BILLION) CALLABILITY ($ BILLION)
300 1600
200
1400
100
1200
0
1000 920
31
21
22
23
24
25
26
27
28
29
30
20
20
20
20
20
20
20
20
20
20
20
>=
800
US HIGH YIELD BY CALL SCHEDULE ($ BILLION) 600
545
350 400
300 347
306
250
200 200 97
68
150 205 161 139
111
100 0 32 12
50
0 Total High Yield BB B CCC
31
21
22
23
24
25
26
27
28
29
30
Non-callable callable, below next call price callable, above next call price
20
20
20
20
20
20
20
20
20
20
20
>=
Source: Dolfin, ICE BAML indices
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comFrom fallen angels to rising stars
Dislocation opportunities in covenant-lite, non-callable fallen angels
2020 excess return since fallen angel (%) DURATION VS YIELD FOR FORD VS US BB INDEX
7
70
6
60
50 5
yield to worst (%)
40 4
BB 5-8 yr BB 8+ yr
30 BB 1-5 yr
3
US BB
20
2 Ford yield curve
10
0 1
CLR
EDF
DAL
ROLLS
FE
FLR
ROCKIE
HI
WE S
KORS
OCY
SILSEA
KHC
ADAABB
SPR
EQT
ZFFNGR
SVC
EPR
RCL
APA
EQM
MX CN
MA RSPE
SESHNG
CVECN
FORD
M
JWN
OVV
MTNA
-10 0
0 5 10 15 20
-20 duration (years)
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Dolfin, Bloomberg.
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comEquities
Mikhail Trebunskikh, Portfolio Manager | Maksat Stamakunov, Analyst
• Bullish on stocks for 2021: current equity exposure is at 85%
• Economy reopening: pent-up demand for travelling and capital expenditures
• Chinese IT stocks are under government pressure on the both sides of the Pacific
#DolfinResearch
dolfin.comA recap on our equity strategy
Current portfolio positioning is at 85% of total equity exposure
DOLFIN EQUITY HOLDINGS VS.
Video MARKET: 2020
Games
9.0%
40.0% 25.1%
Total Return
20.0%
0.0%
All-World 16.5%
ex-US -20.0%
6.5%
-40.0%
Jan-20 Apr-20 Jul-20 Oct-20
EM
FTSE 250
3.0% MSCI Value
6.5%
Resumption
Dolfin equity holdings MSCI World
Long-term Consumer
World 16.3%
5.0%
baskets 22.3% Near-term
Small
Cap Materials
6.8%
basket
7.0%
Online Life
2.0%
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
Source: Dolfin, Bloomberg, Refinitiv Datastream; January 2021
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comKey theme in 2021: Resumption
Elevated savings will fund spending on the upcoming holiday travelling
PERSONAL SAVINGS RATE GLOBAL SURVEY: EXPECTED PURPOSE OF NEXT
30% TRIP
48%
25% 22% 18%
12%
20%
Vacation Visiting Business No interest in
friends/familly traveling
15%
US SURVEY: PLAN TO MAKE UP FOR CANCELLED
10%
TRAVEL WITH ADDITIONAL TRIPS
52%
5%
15% 14% 11% 9%
0%
15
16
17
18
19
20
4
5
6
7
8
9 Yes, in H2 Yes, in 2022 No, not No, didn't have Not sure
-1
-1
-1
-1
-1
-1
n-
n-
n-
n-
n-
n-
ec
ec
ec
ec
ec
ec
2021 planning on plans to travel
Ju
Ju
Ju
Ju
Ju
Ju
D
D
D
D
D
D
making up in 2020 or
US Germany France cancelled trips early 2021
Sources: Refinitiv Eikon; January 2021. RIWI, BofA survey of ~25,000 global consumers; December 2020
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comKey theme in 2021: Resumption
Ongoing vaccinations are a key factor for resumption
COVID-19 VACCINATION DOSES ADMINISTERED PER GLOBAL SURVEY: MEASURES NEEDED TO FEEL
100 PEOPLE (AS OF 11 JAN 2021) COMFORTABLE FLYING
Israel 20.93
UAE 10.99
29%
Bahrain 5.25
US 2.02
Denmark 1.98 24%
UK 1.94
Iceland 1.43 19%
Italy 1.06
Slovenia 0.96 15%
Canada 0.85
Estonia 0.81 12%
Croatia 0.73
Germany 0.64
China 0.63
Spain 0.59
Romania 0.56
Russia 0.55
Poland 0.53 Restrictions Vaccine Employer Already been Won't feel
Cyprus 0.45 lifted available allows it on a plane comfortable
World 0.31 again
Sources: RIWI, BofA survey of ~25,000 global consumers; December 2020. Our World in Data; January 2021
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comKey theme in 2021: Underinvestment
Pent up demand for CAPEX supports our positive view on materials and industrials
CEO ECONOMIC OUTLOOK VS. CAPEX CAPEX BREAKDOWN BY INDUSTRY
80% 20% Other
Food & 12%
70% 15% Beverages
4%
60% 10% Oil & Gas
Semiconductors 30%
50% 5%
3%
40% 0% Chemicals
4%
30% -5%
20% -10% Transportation
7%
10% -15%
0% -20%
Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Airlines / A&D
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 6%
Utilities
CEO Economic Outlook: Change in US Capital Spending: Higher (LHS) Metals &
16%
Mining
Capex YoY growth (lagged two quarters, RHS) Auto
7%
11%
Source: Refinitiv Eikon; January 2021 Source: Morgan Stanley; May 2020
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comChinese stocks delisting from the US
Impact on the actual business is limited due to low underlying US exposure and secondary HK listing
SHARE OF REVENUE FROM THE US ‘CHINESE MILITARY COMPANY’ LIST (11 JAN 2021 ADDITION)
100%
Company Name Sector Market Cap
90%
China North Industries Group Energy Private
80%
China Telecom Communication Services $33.3bn
70%
China Unicom Hong Kong Communication Services $28.8bn
60%
China United Network Communications Communication Services $26.2bn
50% Inspur International Information Technology $0.5bn
40% Nanjing China Electronics Panda Information Technology Private
30% Sinochem International Industrials $2.1bn
20% Sinochem Industrials Private
10% China Construction Technology Industrials Private
0% 1-2%Regulation tightening in China
Previous cases lasted 6-8 months until resolution, after which market leaders emerged stronger
PREVIOUS REGULATION CASE IN ONLINE GAMES BABA VS. PEERS (JD, TENCENT, VIPSHOP, BAIDU)
700 40.0x 30%
600 Banhao approvals frozen
500 35.0x
20%
400
300 30.0x
200 Banhao approvals resumed 10%
100 25.0x
Forward P/E
Tencent (HKD)
Discount
0
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 20.0x 0%
PREVIOUS REGULATION CASE IN EDUCATION 15.0x
-10%
100 TAL Education (USD) New Oriental Education (USD) 200
10.0x
80
Comprehensive investigation 150 -20%
60 on after-school training (AST) 5.0x
100
40 0.0x -30%
50 2016 2017 2018 2019 2020
20
Complete rectification of problems
discovered during investigation Current Discount: -25% BABA: 19.6x
0 0
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Peers' Median: 26.0x 5-yr avg. Discount: -4%
Source: Refinitiv Eikon, Dolfin; January 2021
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comBitcoin - a digital asset for an online world
Paul Nesteruk, Head of Product, Digital Assets
• Increased institutional demand for the asset in 2020 as inflation hedge and store of value
• Investment options exist within traditional markets, with more on the way
• There are many variants such as utility tokens, stablecoins, CDBCs, governance, security tokens and digital
collectibles which we will not cover today
#DolfinResearch
dolfin.comWhat is Bitcoin?
And why does it matter?
What is Bitcoin? Why does it matter?
• A peer-to-peer electronic cash and store of • Trustless and borderless transactions between
value system two parties without a central counterparty
• Powered by developers, miners and users • Resilient censorship resistant architecture which
is not controlled by any one nation, company or
• Designed to have a fixed supply and a organization
determined inflation rate
• Open network with no restrictions on who
• Immutable records via a cryptographically can participate
secured blockchain
• The first practical application of a blockchain
which has led to a surge in innovation
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comBitcoin Vs Gold
Which is the a better store of value?
BTC Gold
Market Cap ~$660 billion ~$10.6 trillion
History 12 Years +2500 years
Scarcity 18.6M mined with a 21M cap, possibly 20% Unknown total supply, estimated ~1.8% new
lost, 2% new supply PA supply PA
Volatility ~120% IV ~20% IV
Transportability Transferrable in any quantity anywhere with Physical transfer speed depends on many
an internet connection in ~30 mins factors such as quantity and distance
Other Utility Immutable messages and online ID (both Jewellery & manufacturing
limited)
Capital Markets Limited derivatives and ETPs Derivatives, ETPs, funds
Regulations, law Emerging, with significant changes likely Long established with significant changes
& taxation unlikely
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comBTC graduated in 2020
Macro conditions and institutional adoption fuelled renewed interest
Past performance is not a reliable indicator of future returns.
If the information is not listed in your base currency, then the result may increase or decrease due to currency fluctuations
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comHow to gain exposure
Potential investment options
• Regulated futures and options • Digital asset firms listed
－ CME － Galaxy Digital
－ Bakkt － Mode
－ Coinbase have filed a S-1 form with
• Companies buying bitcoin as a reserve asset the SEC
－ MicroStrategy － Others likely to follow
－ Square
－ Mode • ETPs
－ 21Shares Bitcoin ETP
• Traditional companies offering bitcoin services － ETC Issuance GmbH
－ PayPal
－ Square • Grayscale Trust
－ ~$21B AUM
－ Historically trades at a premium
January 2021 investment update | Performance | Macro | Fixed income | Equities | Special topic: Bitcoin dolfin.comAppendix
#DolfinResearch
dolfin.comGlossary
§ bps, or basis points, are a unit of measure to describe the percentage change in the value or rate of a financial instrument, where one basis point is equivalent to 0.01 per cent
§ BTP, Buoni del Tesoro Poliannuali, a debt security (bond) issued by the Italian Government
§ Bund, a debt security (bond) issued by the German Government
§ CoCo bonds, a contingent convertible bond (or enhanced capital note, ECN) is a fixed-income instrument that is convertible into equity if a pre-specified trigger event occurs
§ Consumer Price Index (CPI), is a measure of the change in selling prices paid by domestic buyers of goods and services and as such is a popular measure of inflation
§ Dividend yield, the most recently announced gross dividend, annualised based on the dividend frequency, then divided by the current market price
§ Duration, the measure of sensitivity of the price of a bond to a change in interest rates, expressed in number of years
§ Earnings per share (EPS), the portion of a company's profit allocated to each share of common stock. Earnings per share serve as an indicator of a company's profitability.
§ EBITDA margin, measured in percentage, calculating the relation of earnings before interest, taxes, depreciation and amortisation to revenue. Calculated as: EBITDA/revenue * 100
§ EV/EBITDA adjusted, enterprise value to adjusted earnings before interest and taxes value. Adjusted EBITA excludes the effect of abnormal items. Calculated as: enterprise
value/adjusted trailing 12-month operating income
§ Fallen Angel, a bond which has been reduced from investment grade rating to junk bond status due to the weakening financial condition of the issuer
§ Federal Open Market Committee (FOMC), the branch of the Federal Reserve bank that is in charge of short and long-term monetary policy decisions
§ Floating rate notes (FRNs) are bonds that have a variable coupon
§ Global financial crisis (GFC), the financial crisis between 2007-2008
§ Gross value added (GVA) is the measure of the value of goods and services produced in an area, industry or sector of an economy. In national accounts GVA is output minus
intermediate consumption
§ Harmonised index of consumer prices (HICP), an indicator of inflation, harmonised across EU member states
§ Idiosyncratic risk is a risk that affects only a small number of assets or single asset and is sometimes referred to as non-systematic risk
§ Ifo refers to the Ifo Institute for Economic Research and is a Munich-based research institution
January 2021 investment update | Performance | Macro | Equities | Fixed income | Special topic: Bitcoin | Appendix dolfin.comGlossary
§ Institutional Brokers Estimate System (IBES) is a database that gathers and compiles the different estimates made by analysts on the future earnings for publicly listed companies
§ Institute of Supply Management (ISM), a professional supply management organisation providing PMI data in the US
§ Interest on excess reserves (IOER), the Federal Reserve Banks pay interest on required reserve balances and on excess reserve balances
§ Japanese Government Bond (JGB), a debt security (bond) issued by the government of Japan
§ LTRO, or the long-term refinancing operation, is a loan scheme for European banks that was announced by the European Central Bank (ECB) towards the end of 2011 in a bid to
help ease the eurozone crisis
§ Macro, Valuation, Sentiment, Technical (MVST) model, a proprietary model utilising the aforementioned factors to assess market conditions
§ Main Refinancing Operations (MRO), the Eurosystem’s regular open market operations consist of one-week liquidity-providing operations in euro
§ Markowitz Mean Variance Optimisation, creation of portfolios that have the maximum mean (expected return) for a given variance of return (or standard deviation of returns) or the
minimum variance of return for a given mean (expected return)
§ Monetary Policy Committee (MPC), central committee of the Bank of England which takes monetary policy decisions
§ Mortgage-backed securities (MBS), a type of asset-backed security that is secured by a mortgage or collection of mortgages
§ Nominal interest rates, the interest rate before adjusting for inflation
§ Natural interest rates, the rate that would keep the economy operating at full employment and stable inflation
§ Okun’s Law, a relationship between the US economy's unemployment rate and its gross national product (GNP). It states that when unemployment falls by 1 per cent, GNP rises by 3
per cent when the unemployment rate is between 3 and 7.5 per cent
§ Personal consumption expenditure index (PCE), an indicator of inflation used by the US Federal Reserve
§ PE next year, price earnings ratio calculated on next year earnings per share estimates. Calculated as: last price/expected next year earnings
§ Purchasing Managers Index (PMI), an indicator of the economic health of the manufacturing or services sectors. In the US, the PMI data is provided by the Institute of Supply
Management. In the UK and Europe, the PMI is provided by Markit
§ Producer Price Index (PPI), is a measure of the change in selling prices received by domestic producers of goods and services and as such is a popular measure of inflation
January 2021 investment update | Performance | Macro | Equities | Fixed income | Special topic: Bitcoin | Appendix dolfin.comGlossary
§ Overnight indexed swap (OIS), a hedging arrangement in which a cash flow based on an overnight lending rate is exchanged for another predetermined cash flow
§ Quantitative easing (QE), the introduction of new money supply in to a financial system by the central bank in order to increase liquidity – often via asset purchases
§ Quantitative tightening (QT), a contractionary monetary policy applied by the central bank restricting the new money supply to a financial system
§ Real interest rates, the interest rate after adjusting for inflation
§ Relative Strength Index (RSI), a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between zero and 100. Traditionally the RSI is
considered overbought when above 70 and oversold when below 30
§ Return on assets (ROA), an indicator of how profitable a company is relative to its total assets, expressed in percentage
§ Return on equity (ROE), a measure of profitability that calculates the net income returned as a percentage of shareholder equity
§ Risk parity portfolio, an approach to investment portfolio management which focuses on allocation of risk, usually defined as volatility, rather than allocation of capital
§ SAAR, the seasonally adjusted annual rate is a rate adjustment that attempts to remove seasonal variations in the data
§ Standard & Poor’s (S&P), a ratings agency that determines an issuer’s ability to meet payment obligations. A bond with a rating of BBB- or above is deemed investment grade. A
bond with a rating of BB+ or below is deemed high yield
§ Seniority, the order of repayment in the event of a sale or bankruptcy of the issuer. Senior debt must be repaid before subordinated debt is repaid
§ Stochastics, a tool for estimating probability distributions of potential outcomes by allowing for random variation in one or more inputs over time. The random variation is usually
based on fluctuations observed in historical data for a selected period using standard time-series techniques
§ United States Treasury yield curve (UST curve), shows the yields of bills, notes and bonds issued by the United States Treasury plotted on a graph vs. the year of maturity of each
instrument
§ VIX, the Chicago Board Options Exchange (CBOE) Volatility Index, a widely-used indication of the stock market's expectation of volatility implied by S&P 500 index options
§ WTI, West Texas Intermediate is a grade of crude oil used as a benchmark in oil pricing, particularly in the United States
§ Year-over-Year (YoY), a method of evaluating two or more measured events to compare the results with those of a comparable period on an annualised basis
§ Yield to worst (YTW), an estimate of the lowest yield that you can expect to earn from a bond when holding to maturity, absent a default.
January 2021 investment update | Performance | Macro | Equities | Fixed income | Special topic: Bitcoin | Appendix dolfin.comDisclaimer
This is a financial promotion issued by Dolfin Financial (UK) Ltd (“Dolfin”). This document is for information purposes only and does
not take into account specific circumstances of any recipient. The information contained in this document does not constitute the
provision of investment advice nor a recommendation, offer or solicitation to acquire, or dispose of, any of the financial instruments
mentioned and will not form the basis, or a part, of any contract or commitment whatsoever.
No representation or warranty, express or implied, is made by Dolfin or any of its directors, officers or employees as to the accuracy,
completeness or fairness of the information in this document and no responsibility or liability is accepted for any such information
(save in respect of fraudulent representation or warranty).
Prior to making any investment decision investors should seek independent professional advice regarding suitability of any transaction
including the economic benefits and risks and legal, regulatory, credit, accounting and tax implications and draw their own
conclusions. The past performance of financial instruments is not indicative of future results and you may get back less than the
amount you invested.
Dolfin and/or its affiliates may act as a principal or agent in relation to the financial instrument(s) mentioned in this document. Dolfin
may perform or seek to perform investment banking, wealth management and/or asset management services for any of the issuers
mentioned here.
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