Covestor

July was a decent month performance-wise. As of this writing, I have outpaced the S&P500 for the month of July.

There have been several significant drivers of performance, which I’ll outline below:

American Capital Agency Group (AGNC) continues to thrive, thanks to the steep yield-curve environment. Though long term rates have lowered some, their most recent 2Q2010 earnings demonstrate that they have so far been able to sustain their 20% yield (as of July 30, 2010) (required, due to their REIT status), while continuing to incrementally add to their book value.

 Short position on Barrick Gold (ABX) has gained since I sold short on April 7, 2010, as Barrick (and all gold producers) fell during the month of July. My belief continues to be that that gold’s rise has had nothing to do with inflation (counter to the line of “gold bugs), but rather by fear; as fear continues to (hopefully) subside, interest in gold will continue to decline.

Rayonier Inc (RYN), a REIT that owns timberland in Florida, has posted gains, and surpassed analysts’ expectations on their earnings. Though I don’t think that we’ll see timber demand like we did a few years back, lower demand just allows their future inventory to literally grow and grow.

Provident Energy Trust (PVX) consolidated its business to be strictly an oil producer, also announced the spinoff of shares in Pace Oil and Gas, Ltd (MDOEF) to shareholders on April 20, 2010. Recognizing  that the now lower price of the Trust makes it vulnerable to takeovers (such as what happened to Harvest Energy – HTE), the Board of Directors has enacted a unit holders rights plan to allow owners more rights and time in evaluating potential bids for the business. Regardless of whether a bidder appears or not, this has been a great cash producer.

 Perpetually unpopular World Acceptance Corp (WRLD) also posted strong 1Q2010 earnings. It’s one of the few non-dividend producing holdings that I have, but they have been building shareholder value by buying back stock. I continue to think that WLRD will eventually trade at a P/E ratio closer to other financials (WRLD trades at a p/e of 8.87 as of July 30, 2010, where as XLF trades at a P/E of 13 as of July 30, 2010).
 
My debt exposures have also continued to perform well in this environment. High yield bonds (DHY), bank loans (VVR) and municipals (VKQ) continue to remain stable. If anything, they’ve actually been drags on performance, but I do feel that they provide needed exposure in non-equity assets. They may trade in line with other stocks during moments of crisis, but we learned in the last few years that when those moments occur, everything all of a sudden becomes correlated.

I should note, I got burned on my short of BP. All I can say was that was a bad call.