Iain Benson

2025 Portfolio Review

Thu, 01 Jan 2026 00:00:00 +0000

Overall, a solid performance this year with an increase of +34.8%. This is well ahead of both RPI+3% (+6.7%) and the FTSE All Share Total Return (+24.4%) benchmarks.

2024 Portfolio Review

Wed, 01 Jan 2025 00:00:00 +0000

Performance this year has been mixed with an increase of +8.5%, ahead of myRPI+3% (+6%) benchmark but just trailing the FTSEAS-TR (9.2%).

Asset-Light Inflation Hedges

Sat, 06 Mar 2021 00:00:00 +0000

Investment Thesis

I have been looking for alternative inflation hedges so as to mitigate the risk of potential problems with TIPs. Ideally, I have been looking diversify to areas outside of the Real Asset Category, which is my other source of inflation protection.

Funds held in my Multi Asset portfolio have large holdings of TIPs to protect against inflation. One concern I have is that if the CB loses control, they will change the measure of inflation so as to stay under the target. Jim Bianco noted that recently the Fed had recently bought more TIPs than were issued, and now have an enormous footprint (~21%) in the market and the ability to manipulate the rates, “It no longer measures, it is now targeted”. They might not offer the expected protection.

In this video Andy Parker of Horizon kinetics states that he thinks TIPs fail as an inflation hedge for 2 reasons. Firstly, that they are a bet on inflation rather than a hedge, for TIPs to have a +ve rate of return inflation needs to be high. Secondly, TIPs underestimate the rate of inflation as they use CPI which understates inflation, so the bet is not well placed.

In this interview, Russell Napier discusses financial repression and his expectation that over a prolonged period, the governments will peg rates near zero with actual inflation being much higher. He mentions how this repression may be at the institutional level, rather than personal level and raises the prospect of forcing financial institutions (funds!) to buy government bonds. In order to do this they would be forced to sell equities, leading to prolonged equity underperformance. His thoughts are that it is possible escape the repression by identifying companies that would benefit in an inflationary environment, even if more generally the equity performance is poor. He specifically mentions companies with fixed costs, emerging markets, gold and residential real estate.

Many companies viewed as offering inflation protection such as oil companies do not perform well under an extended period of inflation. These companies are asset intensive and although they initially benefit, their fixed costs and operating costs increase which causes profit margins to contract. Speaking more generally, many companies experience poor returns in inflationary environments as many costs cannot be passed on. In addition, PE ratios also contract leading to poor performance eg MCD 1973->1979 the PE went 75->10 despite 25% earnings growth.

Asset Light

There are alternative ‘Asset-Light’ companies, that can perform well regardless economic circumstances, and benefit from indirect exposure to inflation drivers. These companies typically have low fixed costs (eg few employees) which would not increase by much in an inflationary environment.

Horizon Kinetics noted many companies will suffer margin compression, with a primary cause being due to employees requiring their salary to match inflation. Companies will need to increase salaries above inflation to have an (after tax) take home pay increase matching inflation. Assuming salaries start to fall into higher tax brackets, significant increases would be required. This squeezes their margins and makes them less profitable. Asset light business often have fewer employees, and so don’t suffer the same problem.

The asset light business creates lots of excess cash that can be re-invested. These companies usually provide a product or service that is not widely available or easily reproducible. They have pricing power, in an inflationary environment they have the ability to increase prices without their costs increasing, resulting in margin expansion. Importantly, they are not a bet on inflation: they do NOT require an inflationary environment to prosper. Exactly the type of company Russell Napier was discussing above.

Method

Security Exchanges

Security exchanges could be considered counter cyclical, providing essential economic infrastructure. They can be thought of as operating a quasi-monopoly, it is difficult for new entrants to establish scale / volume, meaning there is little competition between exchanges. Operating expenses are low and fixed. Many have strong balance sheets.

Security exchanges can perform well in any environment. In a stable environment, they benefit from new listings, trading, data provision. In a volatile environment (2008) trading volumes increase significantly as firms need to hedge (eg interest rates, commodities, etc) along with a general increase in speculation. It is instructive to view the performance during the 2008-09 period.

“Counter-cyclicals benefit from market conditions with more volatility and wider transaction spreads, which have been suppressed in this artificially low interest rate environment. These provide an entirely different way to try to benefit from conditions that can initiate an otherwise injurious future equity market.”

Links

Lawrence Hamtil 1
Russell Napier 1

Secular Trend: Energy Inflation

Sun, 12 Jul 2020 00:00:00 +0000

Investment Thesis

Following the pandemic and resulting stock market fall, the actions of the governments to expand their balance sheets has re-enforced my view on inflation. I was surprised to find that, as an inflation hedge, the energy sector has outperformed both industrial and precious metals.

The 2010’s have been described as the lost decade for energy, with the sector gaining only 6% v’s 180% for the benchmark. The S&P 500 sector weighting slipped to <5% down from >15%. Will this mean revert?

Recent falls will have made the above chart even more extreme. As a result, many companies are going bankrupt and oil majors significantly cutting back spending. This appears to be a perfect setup for future shortages. The following (old) chart shows the potential future demand shortfall, even prior to the recent problems:

The market narrative is that the Energy companies have no future, with a trend towards renewables / electric cars. This is compounded by ESG investing which has left oil companies trading at multi decade lows. Consider :

Transportation accounts for only 14% of oil use
Current: The developed world consumes 60% of energy, developing world 40%.
Current: The developed world consumes 13 barrels per person per year, developing 3.
2050: Developing world projected to consume 4 barrels per person per year (33% increase)
2050: Developing world population to rise from 6.5 billion to 8.5 billion.

The above points suggest that the Oil Age is far from over. Energy demand is projected to double by 2050.

Method

I’m playing this by investing in an oil major with low cost/long reserve life and a royalty company, both of which have fallen significantly. Avoiding oil majors that are downplaying their role as oil gas companies & investing heavily into renewables to please ESG funds. In my view this is a low risk opportunity to 3x while receiving an ongoing dividend.

Energy appears to be an asymmetric way to play my view on higher inflation. After 10 years of underperformance, downside looks limited and there appear to be reasonable catalysis for decent upside in both the short and long term.

The real asymmetry is hiding in commodities that need to be consumed not held

This is particularly true of commodities that are consumed and cannot be recycled. Like Oil.

Links

(Oil) Industry Performance

Crypto Currencies

Sun, 26 Apr 2020 00:00:00 +0000

I recently set about putting a process in place to purchase various crypto currencies, in case I decide I’d like exposure to them.`

I wouldn’t be keen on storing any currencies at an exchange, and so I’d opt for off-line cold storage (in preference to a hardware wallet). Generating the addresses/keys on a computer that will never be connected to the internet.

Ethereum

My understanding of Etherium is that it is a platform where programmers can build decentralised applications. Smart Contracts are said to be it’s main use case. My worry with ethereum is that is is more of cool project that a type of money, and there are question marks as to how it will develop. Interesting posts here and here.

To transact, my starting point was this python script which I could follow and seemed reasonable. I supplemented this as follows:

Validate the generated address using python Web3 library
Using the generated private key, ensured it generates the same public key once converted back using another method.
Generate QR codes for the resulting ethereum address / private key.

My script output to the terminal as follows:

It generates a png containing the QR Codes:

After I have the required files, I would use gpg to encrypt them before transferring them off of the offline machine. Any intermediate files would then be deleted using the linux shred utility.

Bitcoin

Bitcoin is the most well know crypto, acting as a schelling point for new money. It markets itself as a store of value and is seen as a competitor for fiat currencies. My concern is that as a competitor, it may become outlawed with its weak points being its interface to the banking system. I’ve seen some crytpo enthusiasts also complain that it is slow and doesn’t scale.

My starting point with bitcoin was the bitaddress site, which many use to generate their wallets. My plan was to review the code before using it - however, looking at the code there were over 10K lines of very low level code.

I then went about looking for python scripts, though couldn’t find a working solution. Bitcoin encoding is more difficult than that of ethereum.

I finally stumbled on a post on how to perform the encoding here and here, along with a corresponding github repo which I used to create a script.

While I didn’t trust the bitaddress code to generate the private key, the offline site does have the option of generating addresses in various formats and QR codes. My plan is to use that to validate the script output and to get a png with QR code etc.

Ripple

Ripple is interesting in that it’s use case appears to be fast money transfer, a replacement for the swift system. Ripple was created by a private company who control a lot of the coins and development, which many see as a negative. On the plus side, it appears to have the backing of large banks.

Purchasing offline options were limited for Ripple. I initially found xrppaperwallet though couldn’t find much further information on the site and so didn’t pursue it further.

I then found a random github repository which looked more promising. Essentially it just executed a function in the ripple lib javascript library. The only question mark was if that library was trustworthy.

I tried to build the ripple javascript library myself, directly from their official github repository , which proved to be a bit complicated as (i)Installing yarn on ubuntu installs cmdtest instead (ii) ripple library now needs a jquery js file that the earlier one didn’t. Once I has the new trustworthy ripple-lib, I then just updated the generateSecretOffline page to use that instead.

In addition to the above, I also wrote a python script to generate QR Codes that I could then encrypt before transferring off of the offline machine.

An ETF Bubble?

Sun, 01 Dec 2019 00:00:00 +0000

The main argument for ETFs is guaranteed market hugging performance and low cost fees. While an active manager might charge 1.5% (plus much more in hidden fees), a similar ETF could charge 0.5% or less. All else being equal, this 1% saving could compound over time to correspond to a final investment pot of 50% more when compared to an active fund.

Here’s some thoughts on why I’m not keen on using them…

The Case Against ETFs

Traditionally, the market consisted of rational players making risk-reward decisions on when to buy or sell a stock. This led to a somewhat efficient market, with shares trading at their ‘correct price’.

With the advent of indexing, the pendulum started to swing and investors instead stopped making risk reward decisions and only decided to ‘buy the index’. As the proportion of people indexing has grown, this has led to distortions in the market.

As waves of money enter the market, expensive shares become more expensive as they are blindly bought according to their weighting in the index. The gains become self sustaining as more money enters and shares are driven to unimaginable highs. Large ex-growth companies now trade with 25+ PEs.

It’s my opinion that in these distortions lies opportunity. The market has bifurcated with shares that lie outside the indexes (or with lower weightings) being left behind and not bid-up like the larger ETF constituents. Steve Bregman classified this bifurcated market as “the ETF Divide”.

When the markets does have a pull back, there’s a risk that the momentum that drove stocks higher goes into reverse, creating a negative feedback loop. The overvalued stocks held within ETFs could fall significantly and the undervalued stocks that were left behind outperform. Active investors may once again have their day in the sun.

Suspicious PEs

Steven Bregman details the calculation of the PE Ratio for the NASDAQ. High PEs & -ve PEs are excluded from the calculation, then the calculation is performed using a ‘Weighting Harmonic mean’. This post explains the process, essentially it is the earnings yields that must be averaged not PEs.

Float Adjusted

Indices have been changed to lower the weightings of holdings in proportion to insider ownership. This ‘float adjusted’ weighting methodology improves the scalability of the ETF, though likely not the performance of the fund - given that stocks with high insider ownership are said to return up to 4% more per annum!

As the insiders sell their shares, presumably as they’ve lost confidence in the company, the ETFs (a natural buyer) can step in and increase their weighting. This is precisely the opposite action any rational investor would take.

Diversification (Lack Thereof)

Due to the amount of funds entering ETFs, the indexes are forced to give larger companies higher weightings in the indices, which is sub optimal. Many companies don’t have sufficient liquidity and can’t be included, that is not enough shares are traded to handle large inflows of ETF cash.

Worse still, due to this liquidity constraint, they often include companies in the indices where they might not belong - Mr Bregman gives the example of Exxon Mobile being 25% of the iShares U.S. Energy ETF, 22% of the Vanguard Energy ETF, Its in Dividend Growth and Deep Value Indices.
It is in the USA Quality Factor ETF and in the Weak Dollar U.S. Equity ETF. He states “Get this: It’s both a Momentum Tilt stock and a Low Volatility stock.”

As well as having the same stocks in multiple (seemingly unrelated) ETFs, the fact that a handful of stocks in each index account for the majority of the funds suggests diversification may not be as good as advertised.

Conclusion

You Need to search for securities that are outside the ETF flow of funds, that are idiosyncratic in their behaviour. They might do well, or might do poorly, but not for the same reasons the rest of the market does well/poorly.

As everyone and their dog is indexing these days, my gut instinct is to do exactly the opposite - selecting active funds that focus on equities that are outside the indexes, with a bias to small cap.

Links

Steven Bregman Grants,
Realvision 1, 2, 3
JesseFelder
Michael Burry
Mike Green
Mike Green & Steve Bregman
AquirersMultiple based on Horizon Kinetics 2020 Q2 Commentary

Secular Trend: Commodity Cycle

Thu, 28 Nov 2019 00:00:00 +0000

Investment Thesis

Since the financial crisis of 2008 and the resulting QE, financial assets have significantly outperformed real assets. The following chart shows just how extreme this outperformance is:

Interest rates now around their limits at the zero bound, new policies are being considered (MMT) which are said to be much more inflationary.

The last time we were in an inflationary environment was 1970s, equities were shunned and commodities performed very well. My thesis is that in the near future, the bear market in real assets will end and they will once again outperform.

Considering the ~10 year underperformance of commodities in the above chart, revision to the mean suggests that they could be a good place to be.

In the event of a recession, my expectation is for the value of real assets to drop as well as equities. If they were to fall, then they’re falling from a low base and I’d expect a quick recovery.

Method

Strictly speaking, my large allocation to uranium as part of my Electricity Demand theme should be considered a commodity allocation - but I’m choosing to put that in a different silo as has it’s own driving factors.

This theme is more general and I intend to play it by investing in royalty companies focused on base metals, rather than commodity funds. As Horizon Kinetics explain:

While mining companies have appreciated during brief bouts of inflation, they have done poorly during extended periods of inflation. This is because they are asset intensive businesses, both as to physical capital and human capital. Over time, inflation acts upon the cost of replacing equipment, of purchasing and developing new reserves, and of retaining and compensating employees. This erodes both profit margins and the stock valuations.

Russel Clark gave an example of this when he who noted that BHP lost 90% of its value in the 1970s during an inflation boom. Horizon Kinetics go on to explain that there is a limited universe of business models that are asset-light, rather than asset intensive, and which derive their revenues from assets that tend to be inflation vectors. One example is a royalty company.

Royalty Companies

“The best business is a royalty on the growth of others - requiring little capital itself” Warren Buffett

Royalty companies can be considered as a finance business rather than a mining business, providing capital in exchange for revenues. Royalty companies don’t require capital equipment or property; neither do they have any operations per se, just administrative staff. Therefore, they benefit fully from any increase in the price and volume of the underlying commodity in which they have a royalty interest.

Advantages include:

Very high profit margins (profitable even if commodity price declines)
Low Risk(I): Mining companies must pay royalties prior to all other deductions.
Low Risk(II): Falling commodity prices squeeze miners costs. Royalties unaffected.
Low Risk(III): Unaffected by unexpected costs (cost overruns etc).
Better Inflation Hedge: Mining cost increases => Less profits for Miners. Royalties unaffected.
Upside not priced in (Mine life extensions, Commodity price increases, New discoveries)
Trading at low multiples to NAV when compared with precious metal peers.

One obvious question: if royalties are so profitable, why do mining companies sell them? The reason is that after selling a royalty, the mining companies don’t start to pay back until the mine is producing, which can be several years. If they instead chose debt, they would have years of interest payments to make prior to production

As well as capturing the commodity upside, it is anticipated that the discounts to NAV should narrow as the companies increase in size as borrowing becomes cheaper.

Links

Simon White
GoRozen.
Good Vid on Royalty Rationale
therationalcloning RoyaltyWriteup

Secular Trend: Electricity Demand

Fri, 15 Nov 2019 00:00:00 +0000

Investment Thesis

Global electricity demand predicted to increase by 76% by 2030. Drivers for this include population growth, increasing use of electric vehicles and trend towards greener forms of energy.

While many will choose to play this trend with renewables, nuclear power offers a compelling investment alternative with asymmetric risk/reward profile.

Uranium is an extremely cyclical boom/bust business. The current cycle is unusual in that there are 2x reactors coming online compared to the last cycle, which are significantly larger than existing ones. This is happening against a backdrop of dwindling (& opaque) stockpiles / insufficient supply as mines are shut down and discoveries left undeveloped / producers turning into buyers. In short, Supply is severely constrained while demand is increasing significantly.

This supply/demand dynamic has created a huge opportunity which, once shortages become apparent, has the potential to give significant returns.

Key points:

Green form of power, emissions free, cheap and (importantly) constant.
Demand(I): Currently ~450 reactors. Proposed: China 184, India 7,Russia 9.
Demand(II): By 2030, China will consume all current U3O8 supply.
Demand(III): Util. Contracting ramping up from 2020. Anticipate not enough Uranium.
Supply(I): Extraction cost far below spot → price rises or shortages (catalyst).
Supply(II): New mines take years to develop / re-start → no quick fix.
Price(I): Near low, around $25/lb. Plummeted from $130/lb → $20/lb.
Price (II): Utilities want certainty of supply. Price secondary (¼ fuel rod cost)
Price(III): Fraction of spend for utility companies(~5%).Scope to increase dramatically.
Price(IV): Demand is price inelastic, higher prices do not choke off demand.

Method

Fund options limited & expensive. Invest directly in basket of Uranium companies which are leveraged to the Uranium spot price.

Preference for companies that can be producers in this cycle and are less likely to dilute shareholders. Include geographic spread and mix of small/large companies. Will avoid US listed equities due to reporting obligations (W-8BEN).

Investment Considerations:

Timescale: Around 5-10 years for demographics / supply crunch to fully play out.
“Success rate of mines going into production is not only low, it’s exceedingly low.”
Expectation (I): In last bull worst performing stock increased 20x. Asymmetric risk reward.
Expectation (II): Small sector - once retail pile in, expectation is for ‘violent upside’
Risk(I): Nuclear accident significantly impacting demand. Unlikely permanent.
Risk(II): Company issuing shares to fund development, diluting existing holders. Likely.
Risk(III): General crash causing forced sales. Unable to get finance - credit squeeze. Likely.
Diversifier: Not dependent on global macro but on Uranium fuel cycle → uncorrelated.

Secular Trend: Currency Debasement

Fri, 08 Nov 2019 00:00:00 +0000

Investment Thesis

“Paper money will always return to its intrinsic value. Zero.”

In a fiat based monetary system, the value of money is slowly eroded over time which amounts to a significant hidden tax on savings. Governments can borrow money via the bond market and pay back with devalued money in the future; the alternative of raising taxes is not popular with their electorate. A gold sovereign (the original pound coin) had a value that remained static for 100s of years, until the advent of fiat money - it’s now worth ~275x what it originally was.

In contrast, gold is an extremely stable store of value. They say that in Roman times, an ounce of gold would buy a toga and a fine meal and that today that same ounce would buy a suit and a similar meal.

Many governments like to describe gold as merely a pet rock, even though their central banks are rushing repatriate their holdings and increase them as they likely know what is in store. It’s in their interests to talk it down, yet occasionally the truth slips out. Here’s a recent quote from the Dutch central bank :

Gold is the perfect piggy bank, it’s the anchor of trust for the financial system.
If the system collapses, the gold stock can serve as a basis to build it up again.

Gold can’t be printed, it’s growth closely matches that of worldwide population growth. Gold is universally recognised as having great value (game theory ‘Schelling point’ ). It has all the properties of money as described by Aristotle.

With the dramatic escalation of money printing in recent years and bonds no longer giving any return, it makes sense to hold a sizeable percentage of a portfolio in precious metals.

Given golds few other uses, when the time comes it can be instantly revalued to any dollar value without knock-on effects, then used to back currencies and wipe out sovereign debt.

Method

For the reasons expanded upon below, I intend to use direct investment into physical silver as my main exposure to this theme. I may additionally hold a smaller amount of mining companies.

Silver

Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants & debt is the money of slaves

Silver is significantly more volatile than gold, but the potential returns are far greater. This is the reason that I have opted to hold it in my growth portfolio - as a levered play on currency debasement.

Compared to gold, silver is a tiny market. The same amount of money entering the silver market would drive it far higher. Alternatively, the market could be contained (manipulated) with a far smaller amount of money.

Silver is both a precious and an industrial metal. It is a by-product of other industrial metal mining and so in a crisis I’d expect its supply to decrease and support the price.

Gold / Silver Ratio

One key aspect of silver investment is the ratio of gold to silver, currently around 85. In times of crisis this could decrease to around 20 or so, which gives the leverage to supercharge the returns.

The natural ratio of gold to silver is said to be 17.5:1 which is close to the monetary ratio used in the 19th century of 16:1. In the 1970’s the Hunt brothers expected the ratio to go to 5 - so 85 seems a good entry point.

Also consider that, as an industrial metal, Silver is consumed (65%) whereas all the gold that has ever been mined still sits in Vault. This should put a steady downward pressure on the ratio.

Miners

Precious metal mining stocks are another alternative ‘levered’ play on currency debasement, with explosive returns.

I had intended to invest in ‘Jr’ miners, though the following charts have caused me to reconsider this as long term returns are very poor, as can be seen in the chart below. Investment in silver looks to be as good during bull phases and much better over longer time frames, with no company risk.

In this Real Vision interview, Dan Tapiero and Thomas Kaplin raised the possibility (expectation even) that when gold is much higher, governments in many countries may expropriate mines. They emphasised need to stick to safer jurisdictions. My take from this would be to not invest in ETFs which will include all jurisdictions, and stick to individual names in North America.

In the charts below the black line is the Barrons Gold Mining Index and the blue the Philadelphia Gold and Silver Index:

The following charts show performance during each of the past 3 bull runs:

Links

Gold Price History in Pounds Gold Charts

Portfolio Liquidity

Wed, 05 Dec 2018 00:00:00 +0000

A rather dull topic, though worth a note so as I can document what the hell I was playing at w.r.t. currency holdings during the Brexit transition.

As I have a large percentage of my Portfolio in Cash, I’ve been watching the Brexit situation with reluctant interest. The near term direction of GBP appears to be a binary bet on the outcome of the next weeks vote.

Given this, I started moving cash out of pounds sterling and into USD, which many feel could outperform due to a dollar shortage. I had hoped for more of a dip to move more across, but have managed to re-allocate a large percentage my cash holdings.

In the unlikely event of a successful leave vote, I can see sterling increasing against other currencies. I think more likely there’ll be indecision and it will drop further. Regardless, I’m expecting the long term down trend in Sterling and so the trade represents good risk/reward.

As of today, here’s how things stand in the cash part of my portfolio:

Short Duration US Treasuries (IBTM) - These have short duration (0-3yr) and so are a good proxy for USD. Not sensitive to interest rates. A safe store of value.

Medium / Long Duration US Treasuries (IBTM / IBTL) - USD exposure but introduces interest rate risk, with the latter being particularly sensitive. If I’m wrong and GBP/USD moves against me, I’ve also the possibility of making any losses back due to the bond yields falling pushing the price of the bonds up. As market weakness in 2019 is my baseline scenario, this gives me 2 bites of the same cherry - which makes it a good trade. Obviously, strong GBP and strong stock market would be a disaster…

Short Duration TIPS (TP05) - Inflation protected US bonds with 0-5yr duration. I’ve added these as many of my multi asset funds hold similar and they seem a safe place to hide.

Gold - It’s shiny. I wasn’t sure to include this, hence one chart with/without above.

So, a bit of everything - choosing not to be exactly right or exactly wrong, but somewhere in between, allowing me to live to fight another day. I’m retaining a sterling chunk which will allow me to take advantage of any downturn in the market.

Things are made more difficult in that my accounting is in Euros, so may have to pay gains that otherwise wouldn’t. There’s no way round this.

Summary: It’s a difficult environment to choose where to hold liquidity and I’m hedging my bets. I managed to largely circumvent the earlier devaluation, so hoping for similar this time round. I did tell you it was dull.