The Riddle of Japan

May 2, 2011

The fund had a decent April and we are now up 4.5% net for the year to date, but performance was somewhat disappointing. The gain for the month should have been bigger. We got the direction of the market right and ran a healthy net long, but our country and sector picks were mediocre. Our substantial tech basket was our leader closely followed by the smaller Morgan Stanley basket of European companies with significant emerging market exposure. As discussed in an earlier report, we added a customized tech basket of a small group of individually selected technology companies that are primed to benefit from the developing environment of tablets and so-called cloud computing. Thai stocks and our substantial positions in the Thai banks were another bright spot. Our timing in buying Japan after the earthquake market break was rewarded, and we subsequently added as our confidence that strong growth will be evident by the fourth quarter grew. Other holdings across Southeast Asia (particularly Korea) were helpful.

Unfortunately, the China stake and our Hong Kong luxury holdings did very little and were flat for the month. We still believe Chinese economic management is misunderstood, and that the market is too cheap. Agricultural commodity prices are coming down, and the tightening cycle may be closer to having run its course than investors think. We actually lost money in the global oil service stocks and in U.S. financials, which we liquidated mid-month. ...

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