NUR December 2020 Edition

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Contents Page


Quick take on Iberian Markets


US Elections: What is left for Biden?

4 Page

7 Page


Extra: What is Short Selling?

NIC-UD Fund: Monthly Performance

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Quick Take on Iberian Markets André Matos Spain in the way to approve 2021 budget: spending stands out. The Spanish government, run by a centre-left coalition, has finally formed a majority in congress in order to approve its 2021 budget plans. The current budget was made in 2018 by the previous party (PP). The new budget is expected to increase revenues by €6.8bn in 2021 and €2.3bn in 2022. Among the measures to enable a higher spending are a new anti-fraud law, a financial services tax, a tax on digital services known as “Google tax”, a tax on single-use plastics, increases in high income and corporate taxes, and a sales tax increase to sugary drinks. First tranche of European support, €3bn, arrives to Portugal. Ursula von der Leyen announced this first tranche will be available on December 1st. This value is part of SURE program, with a total value of €5.9bn destined to support employment. Portugal’s 10-year bond yield reaches negative grounds. Investors are anticipating that the ECB will continue to assist the markets through its assetbuying programs, raising market confidence. Most investors moved away from low-yielding bonds, such as the German sovereign debt, to those that offers higher yields, which is the case of Portugal. Fitch rates Portugal’s Long-Term Foreign-Currency Issuer Rating (IDR) at BBB. The ratings agency gave its recommendation despite its expectations of a GDP contraction of 8.8% in the year of 2020 and public debt-to-GDP increase to 136.2% of GDP. Amongst the positive factors are High ESG scores, 2019 fiscal austerity practices, low interest costs, and a strong 2021 rebound. PSI-20 and IBEX 35 close November with historical gains. The Portuguese stock index gained 16.72% during last month, the third best monthly performance ever. BCP, Altri and Pharol SGPS were the best performers. All the PSI-20 stocks closed in green. The IBEX 35 Spanish index gained more than 25%, closing November as the biggest increase in its history.

João Vitor Serrasqueiro

BBVA and Sabadell merger called off after price disagreements. Rumours about a possible merger between the two banks started after BBVA sold its American operations to PNC Financial Services for $11.6bn. The cash proceeds of the sale, which accounts for 50% of BBVA’s market value, would be used for the merger. Instead, Banco Bilbao Vizcaya Argentaria SA said it could use the deal proceeds to buy back shares or expand to other markets like Mexico and Turkey. TAP reveals a cumulated €700.6m loss in 2020. The predicted value for the rest of the year ranges between €800m and €1bn loss. Nonetheless, the results of the third trimester show a better performance comparing with the second semester. The restructuring plan of the company predict a 25% cut on salary mass, closing more than 1800 jobs. Portuguese Telecom Giants sign up for 5G auction. Legal disputes remain. Despite ongoing legal disputes, Altice, Vodafone Portugal and NOS have all submitted applications to participate in the auction that will take place in January 2021. The regulator ANACOM wants to lower the level of obligation of new entrants while also giving them access to the incumbent’s roaming. The move has been criticized by the three. The auction is expected to raise €238m. Credit Suisse appoints António Horta Osório as its new chairman. The outgoing chief executive of Lloyds Bank will start at the end of April. The Portuguese banker was selected despite the lack of experience in wealth management and investment banking. Horta Osório will be the first non-Swiss national chairman in Credit Suisse’s history.

3 NIC Undergrad Review

US Elections: What is left for Biden? Now that Biden won the elections, he has great challenges to face if he wants a successful presidency: an ungoverned pandemic, a trade deal with the UK, an on-going trade war with China and a divided Senate. Biden and its US foreign policy Many would expect Biden’s presidency to be like Obama’s in what respects foreign policy: a steady but not too overly cautious interventionism. However, the world is not the same as it was when Joe Biden left the white house in 2016. They will not have the same European support President Obama had, as the EU has to face its own serious internal issues related to its constitution and organization, which could be aggravated by an unsuccessful attempt to find a proper replacement for German’s chancellor and ‘mother of the EU’, Angela Merkle. Biden reaffirmed during the campaign his project to reassert American global leadership, but to also restore multinationalism and diplomacy, and has now nominated Linda Thomas-Greenfield, a respected veteran diplomat as his new UN ambassador as he hope to bring back stability to UN-US relations.

Biden and Brexit Brexit is a game of trade and patience between the UK and the EU. However, last week, a new player jumped stir up the board. Having himself Irish ascendancy, Presidentelected Joe Biden has already affirmed the imperative need to uphold the Good Friday agreement, which in 1998 ended violence between Unionists and Separatists in Northern Ireland and now safeguards open open borders and social stability in the island. This is one of the most crucial and controversial topics which have been holding up an EU-UK Brexit deal to take form. And if Boris Johnson were to jeopardise it, Biden has guaranteed there would not be any sort of trade agreement between the UK and US. In addition, the British government is currently legislating a controversial internal market bill which

António Gouvêa

Ricardo Freitas

would create legal precedents for UK ministers to overrule protocols established between the European Union and the United Kingdom in last year’s Brexit withdrawal agreement (also known as the ‘Brexit divorce deal’), particularly in what concerns free trade in Northern Ireland. Critics say that the UK government will break international law if it decides to move forward with this bill and decides to ‘rip off’ the withdrawal agreement. This is a clear red line for the new Washington administration, which has, again, stated there will be no US-UK trade deal if so happens. Being the United States one of the most important trade partners of the United Kingdom, this new ‘Biden Pull’ could have a significant swing in the Brexit negotiations. There seemed to be an impending trade deal between the UK and US during Trump´s presidency, being the prime minister and the president at apparently good terms. However, Boris Johnson was one of the first global leaders to recognize Biden´s win while recounts were still being contested. Later criticized by President Trump, this shows yet another thought out move by the cautious and strategic politician that is Boris Johnson. The UK prime minister's good record changes the way the wind starts to blow: it happened with Brexit, with Covid-19 and now with the United States. This could imply a shift in Boris stance on the E.U deal, to a more lenient and comprising outlook, now that he lost the US backing.

Washington vs Beijing Trump’s presidency put an end to previous governments’ foreign policy towards China. The 1990s and 2000s highlighted an inclusive policy toward the Asian superpower in hopes that, once exposed to the global trading system, it would change its regime inree t.e system. 4

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change its regime and economic structure in favour of a free trade system. The 45th president chose a different approach: a multiyear aggressive policy towards China, with the enforcement of tariffs and multiple accusations regarding the ongoing pandemic and the theft of intellectual property. Aggressiveness was chosen over cooperation. Likewise, on the few comments the President elected, Joe Biden, has already made about China, he referred to the Communist Party Leader as a ‘thug’, sending a clear message that its presidency will keep the same track record as Trump, although showing the two sides of the same coin. ‘The idea that we are poking our finger in the eyes of our friends and embracing autocrats makes no sense to me.’ said Mr. Biden. In the past four years, Trump’s disregards against the NATO alliance had led to a weaking relationship between the United States and Europe, which has paved the way for agreements between China and some European countries. Mr. Biden is looking forward to reverse this outcome by strengthening his European alliance, thus creating a global stance against the Chinese Communist Party’s unfair trading policies, human rights violations happening in Xinjiang and growing military presence in South China Sea. For the latter, Asian allies such as Japan play a big role since they allow for American presence on China’s ‘backyard’, besides challenging its position as a powerhouse in the region. Other issues, such as Covid-19, intellectual property and climate change will also be at the table once the US-China trade talks resume. Sources close to the next president’s team stated that, some of the tariffs imposed may be drop if deals regarding the matters above arise between the two countries.

What to expect from this presidency The general knowledge is that a blue wave is going to be avoided, and if after the 2nd Senate vote in Georgia the GOP still has control of the party, this is going to dramatically change Biden´s strategy for this presidency, especially in his first 100 days in office. A Republican ran senate will mean that for the President elected to pass meaningful policy in his mandate, he will have to achieve support from both sides of the aisle.

Consequently, the far-reaches of the bills passed will be severely cutter limiting his freedom to govern and uphold his campaign promises. To promote Bipartisanship in the house (which will be especially important to pass a Covid-19 stimulus package, right at the beginning of his presidency), Biden has already stated and assumed himself has an unpolarising president. He has confessed that he will work hard with both democrats and republicans, governing as an ‘American President’. It is also important to note that Biden and Republican whip Senator Mitch McConnell are long-time friends and have a history of cooperation, bringing the President one step closer avoiding a government gridlock. Democrats will need to propose bills that Republicans will not filibuster, and doing so is complicated in critical issues like health care and tax cuts. And the strategy throughout most of the Obama administration was to do exactly that. Biden will have to implement policy incorporated with bigger laws with more support. However, great promises were made during Biden’s campaign, and some are easier to uphold than others. It is highly probable that Biden will rejoin the Paris agreement, since he will not need senate support and himself having promised to do so in his first day in office. When re-entering the international agreement, the US will likely be expected to provide a climate target that is updated from the Obama administration’s goal and a plan to reduce domestic emissions from the power and energy sector. Something much more complicated to achieve unless the shift in demographics and the outcry climate action (particularly in the suburbs) might lead to some republicans senators re-think their stance on these bills and make a bi-partisan climate deal possible.

Internal Issues- Covid-19 The Covid-19 pandemic was another hot topic. Unlike Trump, Biden provided a plan where he vows to listen to science and explore all the areas of response that the first failed during his response to the pandemic. On his campaign website, he proposes to have an effective and equitable distribution system to make sure that every citizen is provided with a vaccine. Until then, he hopes to built the so called Pandemic Testing Board. The name was inspired by 5 the Roosevelt’s War Production Board, the system

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website, he proposes to have an e.

used to produce tanks, planes and supplies in record time in the short run in order to respond to the excessive demand for personal protection equipment and also create in the long run a manufacturing team capable of ensuring the United States’ independence during crisis as such. The Pandemic Testing Board aims to invest in nextgeneration testing, including at home tests and instant tests, in order to scale up the testing capacity by orders of magnitude. Nonetheless, Biden also promised to re-establish the White House National Security Council Directorate for Global Health Security and Biodefense, a department created during Obama’s presidency, dismantled by Trump in 2018. It was formed after the Ebola pandemic with the main goal of better controlling future pandemics.

Top Cabinet Picks Trying to appeal to both sides of the democratic party as well as some republicans, Biden is presenting an uncontroversial team, some not so well known to outsiders, but all known to the insiders.

John Kerry is chosen to be the US Special Presidential Envoy for Climate. He previously served as the Secretary of State in 2015. He was one of the biggest architects behind the Paris agreement back in 2015. Another big indicator of the importance given from Biden to climate change. Jake Sullivan will be the Senior Advisor for the US government. He was the National Security Advisor to Biden when he was the Vice-President. He have a vast experience in the development of foreign policy, and he will be especially important in the Iran Nuclear Negotiations. Antony Blinken is the next Secretary of State. He was the Deputy National Security Advisor during Obama’s presidency. He is another member with vast experience in the department that he is now going to run. He previously voted in support US military action in Libya and Syria, Antony is also known, for his pro-european stance. Janet Yellen was picked to be the US Treasury Secretary. She has served as Head of America’s Central Bank and as a top economics adviser. Also contributed to the economic recovery after the 2007 financial crisis and consequent recession.

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Extra: What is Short Selling? Can money be made when stock prices fall? Is profiting from downturns possible? Well, it is. Short selling is an advanced technique, with potential for unlimited losses. It is a tool to speculate on the decline of securities’ price - it should be exercised with caution. With the following analogy, you will be explained how the process of short selling is done. Imagine that a watermelon is currently worth $5. John is a farmer and, expecting a great harvest, thinks that there will be a bigger supply of watermelon for the same amount of demand. By basic economic theory, prices should go down, so John decides to use short selling to profit from this knowledge. John would therefore ask to borrow, say 1000 watermelons, from another farmer. To make it worthwhile for the farmer, John promises to pay him interest for keeping the watermelons for some time. Next, John goes to the market and immediately sell those same watermelons. Now, John has some money ($5000) from the sale, but he owes the other farmer the 1000 watermelons that were just sold. Believing prices are due for a fall, John waits and routinely checks the markets’ price for watermelons. One month later, new harvests are hitting the market in size and the price is now only $3.5 per watermelon. John decides to buy the watermelons back to settle the debt to the other farmer. Given the current price, John spends only $3500 to buy back all 1000 watermelons. Since John sold them initially for $5000, he profits the difference between the original market value of the watermelons and the new market value, which in this case is $1500. Now, all that is left to do is to go back to the other farmer and give him 1000 watermelons and pay him some interest to settle your debt. Consider that the interest was 10% per annum, John would have paid him roughly $41.5 in interest (10% /12 months x $5000). John is thrilled to have made $1458.5 net on his bet. The above analogy explains pretty accurately what happens when an investor decides to short sell. For example, if an investor wanted to bet that Tesla stock price was due for a correction, he would have to ask his broker for shares to short. The broker would very possibly ask the investor to pay interest on the shares he would like to borrow.

André Fael Next, he would short sell to open the position, resulting in a negative position in Tesla. If the market goes in his favor, and he decides to exit, he would now be buying to cover his position. However, it is very possible that the stock price might go up instead. On this occasion, if the investor decides to cut his losses, he will now have to buy to cover at a price higher than where he short sold, resulting in a loss. If he decides to stay in a position, and the stock price continues to go up, the investor could lose more than his entire investment. To explain this concept, let’s go back to the watermelon analogy. Imagine that after John sold the watermelons to open his position, something very unexpected, like a big fire occurred. The fire wiped out many watermelon fields that were about to be harvested, resulting in a massive supply shortage. Now, instead of falling, the price per unit of watermelons rises massively to $15 per unit, in order to offset the low supply. Very upset with the outcome, but afraid the price will rise even more, John decides to buy back the watermelons he owed to the farmer at the current price. He now needed to spend $15000 to buy back all the watermelons, resulting in a $10000 loss on John’s $5000 investment (a 200% loss) plus the interest charges. Since securities’ prices can theoretically rise to infinity, short selling has the potential to cause unlimited losses. Because of this, brokers can issue what is called a margin call. A margin call is a way for the broker to ask the client to add more funds or securities. This can happen if an unrealized loss had the potential to cause the client to lose all the funds on his trading account and possibly still owe the broker money. With a margin call, the broker protects its interests as if the client chooses not to comply with the request, the broker could liquidate the position forcefully. Therefore, setting a risk level to protect yourself against sizeable losses is a good practice. On the other hand, securities prices can only fall to $0, so short selling limits potential gains to a 100% return on investment. 7

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Adding to the complexity of short selling, not every publicly listed company has shares available for everyone to borrow (easy to borrow). Some lesser known companies could have smaller inventories of shares available to be borrowed. Since those companies tend to be riskier investments, the owners of said shares could need another incentive in order to allow the investor to borrow them. In this case, shares to short are available on a limited basis, and an investor would need to pay hard to borrow fees to allocate shares to his account, in order to be able to short sell those companies. Finding a broker that has shares available on its inventory, even with hard to borrow fees, could sometimes be quite difficult. Since short selling can have such high risk, why do Investors decide to do it? Well, short selling can be used for speculation. There are several strategies that to be profitable rely on this very technique. One could also take advantage of a company going through problems such as troubled management or a public scandal. Facebook, with its Cambridge Analytica issue, is an example of a time where short selling as a short-term speculation

would have proven very profitable. Short positions can also be used for hedging. Hedging is a way to protect oneself against financial loss by taking a position that would profit in the event that their investment loses value. For example, one could buy Amazon stock and short sell the S&P500 index to protect himself against the event that Amazon would lose value as a result of a financial depression, for example. Hedge funds routinely short sell certain stocks or sectors as a way to hedge their long positions in other companies. Summarizing, investors look to use short selling as a hedge when they try to protect their gains or mitigate losses in their portfolio. Overall, short selling is not a predominant strategy as stocks tend to rise in value over time, especially those of well know, established companies. Although there are times of distress in the markets, such as when the financial crisis occurred, in the long run the stock market tends to go up. Therefore, this technique is generally used for short term trading and investing.

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NIC-UD Fund The announcements of the 3 new vaccines by Moderna, AstraZenena and Pfizer were the turning point for financial markets in November

André Fael

Bernardo Patrício

Global Markets November was a very good month for equities and, most likely, the turning point of 2020 as 3 new vaccines with high efficacy rates were announced in this month alone and ready to rolled out either in December or January of next year. Despite tougher lockdown restrictions and, in some places, record cases, markets were very optimistic of a 2021 economic rebound that will jumpstart the stalled world economy. Still, famous investor and hedge fund manager Bill Ackman betted against corporate debt once again with worries of the short-term effect of the pandemic and overoptimism by the vaccine announcements. The November 2020 election went down to the wire and, despite fraud allegations by former Donald

Trump, Joe Biden will indeed become the next President of the United States. Biden has promised to re-join the Paris Climate Agreement, making the renewables and green technology sectors very attractive for the next mandate. Although some optimism resides in the European markets, investors are worried about the veto by Poland and Hungary on the European Union’s recovery fund due to the rule of law condition of access imposed. Crude Oil prices jumped 27% during November due to the vaccine optimism. Chevron (+25,4%), Exxon Mobile (17%) and Apache (55%) were the firms who gained the most in this sector.

Current Positions Regarding portfolio allocation, we have added once again 2 new securities to our Fund, Danone and Kirkland Lake Gold. These new positions are in line with our current goal of decreasing exposure to the US markets and increasing in other parts of the world such as Europe with Danone, and Canada with Kirkland Lake Gold. Our Portfolio greatly increased in value and that was mostly due to a big share price increase in our positions. Our best performers were PG&E (PCG) with a share price increase of nearly 33% during November and EV Battery ETF (BATT.AS) with a performance of 27,60%. Nº

Positions Weight on Total Equity


Energy EU 14.91%


Streaming/Entertainment US Equity

Current Price

Open Price










US Equity





EU Equity




Social Media/Internet

US Equity





US Equity





US Equity




EV Battery





Consumer Products

EU Equity




Gold Miner

CND Equity



Entertainment US


Pharma US Internet US

6.30% 15.03% 4.15%

Utilities US Gaming ETF


Renewables US 9.22%



Electric Batteries ETF Gold Miner

9.98% 14.41%


Consumer Products EU Cash

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NIC-UD Share Price (Inception Cumulative Returns) 0% 10/31/2020







-2% -4% -6% -8% -10% -12%

Monthly Performance

Benchmark Analysis


Despite performing slightly below the benchmark (MSCI World Index), our portfolio’s share price increased nearly 8%. Due to our limited allocation in the European market, we were not able to capitalize on Eurostoxx 50 and Nikkei 225’s spectacular increase of 18,08% and 15,04% MoM, respectively. Still, we overperformed other indexes such as the Shanghai Composite (5,19%) and the FANG+ (0,98%). After a hard month for equities, November 2020 was of the best performing months, driven by the optimism of the vaccine announcements during the month. But not all indexes benefitted from these news. FANG+, composed by blue-chip tech companies such as Facebook and Google, only increased 0,98% after months of high growth. The expectations of less time spent at home and more person-to-person contact are not drivers for these companies which fared very well during the pandemic and lockdown measures.

Corporate News





-15% ETF #1

Stock Stock Stock Stock Stock #1 #2 #3 #4 #5

ETF #2

Stock Stock Stock #6 #7 #8

Portfolio Returns vs Benchmarks 20%

18.06% 15.04%



12.39% 9.69%


7.94% 5.19%

5% 0.98%


Portfolio (Share Price )

MSCI World Index

S&P 500 FTSE 100 Eurostoxx Nikkei 225 Shanghai FANG+ 50 Composi te

One of this past month’s highlights was the launch of next-gen gaming consoles (PlayStation 5 and Xbox Series X) and the launch of new games such as Cyberpunk 2077 by CD Projekt. As we have open positions in the gaming industry from developers (such as Activision and Ubisoft) to chip makers (NVIDIA and AMD), the launch of these new games have positively affected the value of our portfolio. Furthermore, Tesla received the green light to be included in the S&P 500 as one of the most valuable companies in the world, making the share price surge nearly 50% since then. One the streaming industry, Disney+ has added 16 new million subscribers, currently totaling 73,7m subscribers and continuing to catch up with the market leader Netflix, currently with over 195m paid users. Lastly, Facebook has plans to launch its new cryptocurrency Libra in January of 2020 which will allow users to send the currency through Messenger and WhatsApp. This goes in line with the strategy of penetrating the e-commerce market by facilitating payments within Facebook’s market store and other services. 10

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New Positions Danone YTD Share Price $80 $70

Danone Ticker: BN:PA Date: 02/11/2020 Open: 47,80$ Sector: Consumer Defensive Industry: Packaged Foods

$60 $50 $40 $30 $20 02-Jan-20






Investment Proposition As the company dipped below the 50â‚Ź mark, the stock broke through its 8-year low and it was an opportunity we were eager to take as we believe the intrinsic value of this company was not reflected in the market price. Undergoing some changes within the firm, such as the disposal of bad performing assets and the appointment of the new CFO, the firm seems to be well diversified geographically and, also, by revenue streams, owning a lot of well-known brands in different consumer products. In the future, the healthy food market is expected to grow at a faster pace due to changing tastes (long-term trend), which will benefit the firm, and Danone plans to focus on brands that have a better chance of being successful in a post-Covid-19 world. Kirkland Lake Gold YTD Share Price $60 $50 $40

Kirkland Lake Gold Ticker: NYSE:KL Date: 16/11/2020 Open: 44,74$ Sector: Basic Minerals Industry: Gold Mining

$30 $20 $10 $0 02-Jan-20






Investment Proposition After a thorough analysis, we found that Kirkland Lake was the best stock available in the gold mining industry with a proven record of increasing by 34x their EPS from 2013 to 2019 and a YoY Q3 66% revenue growth. Despite the decline in reserves in one of its most important mines, the firm will acquire competitors, such as the already completed acquisition of Detour Gold, and this is possible since the firm has almost a $1bn in Cash and Cash Equivalents and no debt. In other words, the strength of its balance sheet will allow the company to continue its strategy of expansion by acquisition. Lastly, the margins of this firm are very competitive, and it is currently trading at a lower P/E multiple than historically and its peers. From a portfolio perspective, the acquisition of this position works as a hedge against corrections in the overall financial markets and the economy, since gold is considered to be a safe-haven asset. 11

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