The Global Fund (USD) gained 0.61% in January bringing the rolling annual return to 5.91%.
By the end of January, asset markets began to reflect doubts about Sovereign credit and concerns over tightening policy. So our Relative Sovereign Opportunities thesis is being played out in the headlines. The co-ordinated nature of the stimulus measures introduced to counter the financial crisis in 2008/9 magnified its benefit. However, stimulus withdrawal cannot be synchronised. Not only do growth rates vary between countries, but so do borrowing requirements, average debt maturities, the tax base and a number of other metrics. Credit spreads, interest rates, yield curves and currency values can be expected to reflect the perceived variations in national and regional performance for as long as those differences grow. The theme made money.
All seven holdings in Credit Spreads in Transition were profitable. The post crisis tightening of credit spreads is over. Last month’s letter described the broad range of exposures reflected in the market coverage of our current manager line up. We are confident that they will have plenty to do.
Global Financial Sector Dislocation made a positive contribution in January. It is a theme with a defensive dimension. Circumstances have been created that support big bank profitability despite limp loan growth and stubborn credit losses. We believe that the banks and insurers still face wrenching change and that our specialist managers can get ahead of the market in recognising its impact.
The fourth contributor to January’s result was our energy theme. The energy industry is global, yet many of its participants are listed on national equity markets where local valuation drivers overshadow the wider picture and thus create anomalies which our Energy Market Opportunities managers are out to capture. In addition, energy pricing is a major macro input and a key agent for change in financial market valuations. Recognising its significance, on February 1st, we added an energy trading manager to the mix.
Our remaining themes did not have a material impact on January’s results. Below is a brief update on the rationale for three of them.
Our longstanding Asian Consumer Power theme reflects the view that its fundamental strengths will continue to show through in higher rates of growth than elsewhere, and that local consumption will account for a rising share of GDP, providing further impetus to the trend.
Japan Corporate Event Opportunities is made up of three managers with an aggregate weighting of 4% of the portfolio. Our largest manager is seeking opportunities arising out of the widespread international neglect of Japanese equity investments avoiding market direction. His fellows are deep value equity specialists with strong defensive skills. Their perspective will help us track of developments. Think of this as a low cost, long dated, option on future Japanese success.
Given the political temptation to allow it to reduce the future value of today’s government borrowings, inflation is the threat over the horizon. Our Inflation/Deflation Uncertainty theme is made up of two elements; a fixed income specialist with a high level of expertise in real return bonds and an equity manager whose stock selection process includes a robust test of the impact of inflation.