NINA

NINA’s strategy is not only about selecting companies to invest in. It also takes macroeconomic conditions, market trends, and risk management into account. Let me explain: the strategy consists of 3 pillars:

1. Equity Intelligence Engine (equity investor): This engine focuses on a concentrated core portfolio of companies that generate significant profits, hold a dominant position in their sectors with sustainable growth drivers, and are resilient against economic storms.

2. Macro Intelligence Engine (macroeconomic investor): We protect our investments during downturns in the macroeconomy and changing market behaviour. We look for dislocations between asset classes and adjust the portfolio when economic, market, and policy indicators turn green. For example, we can scale down risk and add bonds or gold to the portfolio when we foresee a recession.

3. Risk Intelligence Engine (the risk manager): This is our final line of defence. A successful and experienced manager can expect a success rate of about 55%, meaning that 45% of the time mistakes are made. Even if both the Equity and Macro Intelligence Engines are in the green, the market can suddenly fall. The Risk Intelligence Engine ensures that we immediately limit losses. This system analyses price data across various markets to recognize exceptional situations – as was the case in August 2024. Although our Macro Intelligence Engine indicated that market panic did not have much substance, the fluctuations and fear in the market were too great and exceeded the limits we adhere to in our strategy. Therefore, despite the positive signals from the equity and macro systems, we reduced our market exposure for about a few weeks during the summer.

So why now? Why have we reduced risk since December?

The bearish signals at this time mainly come from the Macro Intelligence Engine. It involves an interplay of three key factors:

1. Incoming economic data: Data from the U.S. labour market has indicated a tight situation, while the decline in inflation is proceeding more slowly than expected. In the Netherlands, inflation is even rising again. Additionally, economic growth is surprisingly positive for economists. Although growth may seem positive at first glance, it can have negative consequences when a lot of stimulus is expected at the same time and inflation is not yet fully under control. This leads the market to push up short- and long-term interest rate expectations on U.S. government bonds. Other factors such as the dollar continuing to appreciate relative to other currencies are also at play. NINA’s Macro Intelligence Engine shows that this combination adversely affects both the valuations of our portfolio and the earning potential of the selected companies. We closely monitor the data and adjust positions when a trend reversal occurs.

2. Policy of the new government: Additionally, the policy of the new government plays a major role. In earlier posts from the CIO Desk, this has been discussed in detail; at the bottom of the newsletter, you will find some links to those articles. We focus on the following aspects:

   1. Immigration: There are concerns that a decline in the growth of the workforce could hamper economic growth, which could also lead to a tight U.S. labour market and fuel inflation.

   2. Import tariffs: The imposition of tariffs on imports from, among others, Canada, Mexico, the EU, and China raises fears that these tariffs will not only affect the earning potential of a large number of American companies, but also be inflationary and impact consumers – especially if China does not allow its currency to depreciate further against the dollar.

   3. The U.S. budget deficit: Investors wonder whether the planned stimulus measures can be financed, for example, through more efficient government spending, an initiative led by Elon Musk’s team, or through the revenue generated from the imposed import tariffs. These tariffs are seen as bargaining tools and, according to the government, generate additional revenue.

3. Expected policy from the Federal Reserve: And then we still have the U.S. central bank, which must respond to the above factors. Lowering rates too quickly could cause inflation to pick up again, while acting too slowly could lead to an economic slowdown or even a recession. Additionally, the Fed must assess the effects of the new government’s policies and deal with pressure from the government to lower rates so that the coupon payments don't dramatically damage the budget deficit. And the market? It in turn must assess what the central bank will do.

A complex mix, indeed. Fortunately, we have NINA.

2024 in brief:

2024 was an eventful year, with markets in constant motion and many developments on the macroeconomic front. Looking back, a few moments really stand out:

• First half of 2024: Everything seemed to come together at the beginning of the year. The U.S. central bank managed to successfully tame inflation, while economic growth and the labor market appeared to withstand the rate hikes without significant damage. As a result, the estimated earning potential of many companies had steadily increased. At that time, we had maximum market exposure, which resulted in strong results in May and June.

• Summer 2024: In the summer, sentiment turned. Although inflation data did show a decline, labor market data continued to show weakness. The market panicked and the screens once again started turning red. The dollar weakened and all the financial influencers came up with various reasons why the big crash was imminent. The inverted yield curve that was normalizing was cited hundreds of times. Although NINA’s Equity- and Macro system indicated that there were no major concerns and that we should look past it, our risk management system showed that the fluctuations were very large. We temporarily reduced risks, and by August, we were back in the market.

• Autumn/Winter 2024: After a 0.5% rate cut (in the U.S.), sentiment reversed. Combine that with the expected pro-cyclical agenda of President Trump, and we had a month or two of enormous positivity. We benefited from this. However, NINA sounded the alarm in mid-December. A rising dollar, rising rates, more uncertainty priced into the options and bond markets, and the expected rate cuts for 2025 quickly faded away. Just before the end of 2024, we reduced risk and ended up as one of the few who were positive in December.

In December 2024, we achieved a return of 2.91% compared to -1.4% for the market, and 7.5% in November. Overall, since the launch in May, we have achieved a gross return of 29.52%—or 45% for the entire year if we include the model portfolio of the older model. We have had a wonderful start with this strategy.

January 2025 and beyond:

I expect that 2025 will be more challenging than a typically negative year like 2022, partly due to the rise of the “Trump/Musk factor.” How do you combine the bullish first-order effects of deregulation and fiscal expansion with the less positive second-order effects, along with the negative influences of immigration, budget deficits, and tariffs? For this, you don't need a crystal ball, but rather a rigorous process, constant pattern recognition, and adaptability – in short, NINA.

We expect to scale up our investments again as soon as the fundamental factors—such as inflation, the U.S. budget deficit, the recovering confidence in the bond markets, more clarity on the new policy, and other relevant indicators—show favourable changes.

True to our process, we then step in later. We make up for this by achieving higher returns in better times. The process is illustrated below.

Updates on argan.ai, our development!

Meanwhile, we are steadily building on Argan. With ambitious goals and unwavering enthusiasm, we look forward to a successful 2025.

• Team:

  • Chief Technology Officer: Discussions are in full swing to add another technologist to the team. This addition will further develop our systems, continuously improve the agents, and build out our models.

  • Investor Relations: We are strengthening Argan with a dedicated team that focuses on our participants and communication. In the next update, we will introduce this team to you.

• New Office: Our COO and co-founder, Ali Sardeha with the help of his brother and their well known magic, arranged an office at Leidseplein for argan.ai. Our new address is:

  • Kleine-Gartmanplantsoen 21-1, 1017 RP, Amsterdam

• Gold System: We have been testing a system for some time now that allows us to add gold to our portfolio, so that NINA can enhance protection in the market when negative risk signals occur. Gold will henceforth form an important part of our strategy.

• CIO Desk:

  • I regularly publish my newsletter, CIO Desk. You can sign up here. In the newsletter, you will read more about topics such as asset classes to invest in, market dynamics, and much more.