YWR: Anything but the US.

Disclosure: Do not take financial advice from a Substack post! Speak to a professional who considers your whole portfolio.

What do you do if you are supposed to allocate $46bn over the next 6 years? That’s the challenge for John Barker, the new CIO of the Mastercard Foundation. He’s supposed to sell down the foundation’s holdings in Mastercard ($MA) over the next 6 years and create a ‘diversified’ portfolio.

Such a tough spot to be in. First, you know whatever you do you are going to underperform Mastercard; ie 90% probability the foundation would have been better off without you, or any of your decisions. Second, your go-to market, the market the board of directors would most approve of, the market which doesn’t get you fired, is historically expensive. And the overvaluation is across all asset classes. It’s in equities, yields, credit, PE and VC. The whole thing is a mess.

So what do you do?

Source: JP Morgan

Burbank Wisdom

What would the old John Burbank do? I don’t mean the new VC one. I mean the old one.

Back when I first met John in 2006 his fund, Passport Capital, had been compounding annually for 5 years at over 25%. I couldn’t understand how he had done so well. By 2006 the S&P 500 had recouped much of the 2001-2002 sell off, but was still down 10% from the 2000 highs. How had Passport done so well through the US bear market?

Burbank explained that back in late 2000 he had had a realisation that he wanted to stay as far away from the US as possible. No tech, no nothing.

“Anything but the US.”

“Anything but the US.” It was classic John Burbank. He reduced the entire investment opportunity landscape to 4 words. And it was brilliant. The opportunities were everywhere, you just had to go places nobody was looking, or willing to go.

And so Passport got big into India, China, Mining, and Energy. Passport even launched special strategy funds for India, Mining and offshore oil rigs. Later in 2006 Passport added credit default swaps as a way to short US mortgages and the US consumer. All things nobody was doing.

Think on that in today’s ‘Everything US’ mentality. Not only did Passport diversify away from the US, but the fund also bet on its financial collapse.

Consider the courage and imagination it would take to be in the midst of the San Francisco tech scene in 2000 and say “FCKIT. I don’t want any exposure to the US. I’m going to India!” Remember, 2000 was similar to today. Tech stocks were everything. Everyone was excited about the internet and its future. Yet, John Burbank was selling his CSCO and MSFT, selling the entire internet dream, to buy asset managers in India and offshore oil rigs.

So insane. So non-consensus. It’s ‘Fake Left go Right’ and why he’s one of the greats.

But what would John be doing today?

He’d be thinking ahead.

He’d be thinking about what moves to make to compound at 25% from 2025 through 2030?

What are the new trends, what is nobody considering?

And he’d have the same tingle he had in 2000. China again for sure. Maybe Africa instead of India. Probably do the rig fund again. Basically, the ‘anything but the US trade’ all over again.

6 Trade Ideas for the Mastercard Foundation

#1. Africa There is a continent out there with 1.3bn people whose stock market is on its absolute lows with no investment interest from anyone in the world, except the Chinese. If you allocate to Africa in 2025 you are officially the new Dave Swensen. See if there are any Africa public fund managers still alive in London or SA and make an allocation. On the flight over you can brush up on the Africa bull case with the

The Blind Squirrel

.

#2. Asian Exchanges. Play the growth of Asian capital markets with strategic stakes in Hong Kong Exchanges (HKEX our China FOMO Play) and SGX (SGX, an exchange Masterclass). The Mastercard Foundation board of directors will like that you are replacing MA shares with similar, high quality, network effect businesses.

#3. China Cash Dragons. Escape consensus. Go over the China Quandary presentation with

Louis Vincent Gave

for a differentiated view on the largest market nobody owns. Then ask YWR to run an SMA for you around the China Cash Dragon theme (YWR Portfolios). You’ll have a chance to buy US tech cheaper in the years ahead. For now buy Chinese tech like Tencent (Tencent’s path to HK$ 1,000) on a discount.

#4. Kuppy Rig Fund. Ask

Kuppy

to run an SMA around the offshore oil rig theme ($VAL, $NE, $TDW). It’s the most hated sector in the world, but this could be a good entry point. The Maersk Family just bought another $45 mn of NE 0.00%↑ (and own 18%) , so you are in good company.

Source: Clarksons

#5 Gold. I know this seems crazy, but maybe buy some gold or GLD 0.00%↑ (Gold and Gold Miners Update). Think about it. Equities, PE, Hedge Funds, High Yield, Mastercard shares; they’re all are the same thing. They sound like different buckets, but they all depend on the economy working well. You want a real diversifier? It’s Gold and it’s the only one left. Bitcoin used to be uncorrelated, but now it’s a retail crack pipe.

And my favorite theme, but don’t tell anyone.

#6. European Banks This theme just quietly works. And nobody knows about it. No Twitter posts, no top ideas debates. The European banks just quietly go about their business paying dividends, buying back shares, growing EPS and never attracting attention. It’s why I love them. The sector’s 3 biggest headwinds from 2009 to 2022 have turned into tailwinds, but nobody has noticed (capital ratios, net interest margins, loan growth). The stocks are all on P/E’s of 5-7x with 5-7% dividend yields. Unicredit, Barclays, Santander and Commerzbank are all in Dirty Dividends, but there are many more to choose from such as BNP, Credit Agricole, BBVA, LLOY, HSBC, ING.

So those are 6 trades to get the Mastercard Foundation started.

Later in 2026 or 2027 come back and allocate to the US. It’s still a great market for the long-term. Until then let the froth subside and look for the opportunities elsewhere. You have your MA shares so you don’t need to worry about missing out.

If you need some fixed income

PauloMacro

thinks Brazilian local yields at 14% look good. Or maybe 28% in Turkey, and 30% in Egypt.

Have a good rest of the week.

P.S. London is cold too!!

Erik