The H Fund (USD) gained 0.94% in November bringing the YTD return to 14.95% and the rolling annual return to 17.44%.
Of the seven themes in the portfolio in November, four contributed positively to returns and one lost money.
Credit Spreads in Transition earned half of the months overall result. All four managers made money and the theme had the largest weighting in the portfolio at just less than 30%. Asian Consumer Power also made a substantial contribution, despite having to absorb one negative manager performance.
The Financial Sector Dislocation theme was also positive, taking advantage of the two way pull currently present in the sector. Policymakers have designed things so that Banks can earn fat spreads and rebuild their capital with those profits at no further taxpayer cost. But the population of stressed borrowers is growing, and while some Banks will earn enough to accumulate new capital faster than additional bad loans are written off, others will fail, or at least fail to emerge from public sector domination as quickly as markets expect them to.
Finally, Relative Sovereign Opportunities made a modest contribution for its 20% weighting. Finance ministers conferences used to be about big common problems, but increasingly, domestic differences dominate the similarities of Global issues. Fresh from taking the entire Irish Banking system into public ownership, Brian Lenihan, the Irish Minister for Finance, has just introduced a budget cutting social benefits, reducing public sector salaries between 7 – 15% and charging a 7% levy on Pension Funds. Irish GDP is still forecast to fall in 2010, though the social and political consequences may take longer to show through.
The yen strengthened to 84 to the $ in November. Shares of exporters suffered, the Topix fell 6.1% and the Nikkei was 6.9% lower. In Japan Corporate Event Opportunities, all our managers lost money in the month.
In this last newsletter for 2009, a review of the theme results for the year so far shows that Credit Spreads in Transition with its average 20% portfolio weight has generated half the fund’s overall return. Despite its more modest average 8% allocation, the Asian theme accounts for a further quarter of the performance as the fundamental strengths of the Asian region have reasserted themselves. There was no dramatic domestic asset overvaluation there in recent years and Asian financial companies had minimal exposures to the ‘toxic’ assets that caused trouble in the west. Consumers have savings, useful for absorbing shocks and more importantly, so do Governments, which have responded to slowing GDP with fiscal stimuli that do not hobble future growth. Relative Sovereign Opportunities has generated a fifth of the portfolio return, off an average 25% portfolio weighting.
The detractors have been Japan with an average 9% weight and the financial sector theme, weighted at 21%. In both these cases, the negative return has been approximately 50 basis points at the portfolio level. Their potential as diversifiers of risk has been proved in both of the previous two years. In 2009, they have performed this role at limited cost.