NAV: 375,284.9
Total Shares Outstanding: 363,418
NAV per share: 1.0327
Performance since inception: 2.52%

The Middle East conflict continues to move markets with some hope for a peace deal emerging on 23rd May. Trump has told his diplomatic representatives not to rush into any deals, as ‘time is on their side.’ However, I believe that he’s actually desperate for an off-ramp and is merely projecting a position of strength. It is increasingly clear that this conflict can only be resolved diplomatically, because if a military solution were viable, Trump would have pursued it by now. That said, peace talks and ceasefires appear fragile, as the US struck Iran last week in the name of ‘self-defence’, while Israel continues to bombard Southern Lebanon. The demands from both parties remain at polar opposites. I remain skeptical about a peace deal materialising anytime soon. From Iran’s perspective, the US cannot be trusted, as evidenced by the bombing campaign conducted during prior negotiations. From Trump’s perspective, although he is looking for an off-ramp from this costly conflict to garner support ahead of the mid-term elections, he is also looking to save face — and I believe he would not hesitate to resume the conflict should his ego be bruised. In addition, there are hawks within Trump’s party who are pushing for further escalation. The silver lining is that Iran appears to be carefully calibrating its response in order to reach an agreement while avoiding unnecessary escalation.

The outcome of this conflict so far has been higher prices across the board. Singapore’s price for 95-octane fuel was S$2.88–S$2.92 per litre on 4th March, rising to S$3.42–S$3.49 per litre by 31st March. US gas prices similarly rose, with a gallon of gasoline increasing from $3.25 to $4.47 over the same period. Higher energy prices have fed into inflation data, with US April CPI coming in at 3.8% YoY. This reading, alongside a lacklustre visit from Trump to Xi, caused yields to rise, with the 30-year yield reaching an eye-watering 5.12% on 15th May, triggering temporary sell-offs across the market. This was quickly forgotten as markets rebounded on a wave of optimism, pushing the S&P 500 to yet another all-time high.

Last month, a noticeable number of positions were stopped out during the sell-off, only for us to miss the recovery. Based on observations over the past months, I have noticed that we tend to get stopped out frequently and subsequently miss the rebound. I have concluded that the stop-loss gap may have been too tight given the monthly rebalancing schedule. We will therefore be widening our stop-loss gap from this rebalancing onward. This comes with a trade-off, a wider stop-loss gap should result in fewer false triggers, however it also means a larger drawdown should a genuine crisis occur. That said, our 1st layer of defence is portfolio allocation with position sizing, with stop-losses serving as the 2nd layer. I will continue to monitor the effects of this change as we navigate the market.

May’s factsheet can be downloaded here.