The H Fund (USD) gained 0.97% in January bringing the rolling annual return to 16.74%.
In January, asset markets began to question the vigour and durability of the liquidity driven post-crash bounce. In this context, the result for the month was solid. Five themes produced positive returns; the Asian theme lost money. Below is a brief update on the rationale for each of our themes.
All five managers in Credit Spreads in Transition were profitable and, given its 39% portfolio weighting, this produced over half of the return. The post-crisis tightening of credit spreads is over and an uneven path for spreads is in prospect from here. The US default cycle may well have peaked in December, but the looming overhang of corporate refinancing through to the end of 2012 looks like providing a continuing supply of highly stressed credit for some time to come.
Japan Corporate Event Opportunities is made up of two managers, one of which will be redeemed as of March 1st. This will reduce the weighting to 5%. Most non-Japanese investors have given up at this point and a 5% commitment cannot be described as a ringing endorsement of the case for Japan. However, this manager is seeking opportunities arising out of the widespread international neglect of Japanese equity investments. His success does not depend on political reform or economic regeneration and his presence in the portfolio will help us track developments.
Our Relative Sovereign Opportunities thesis is being played out in the nightly television news bulletins. Greek credit is weak, but others are frail, especially in the industrialised west. Politicians can draw satisfaction from the co-ordinated nature of the stimulus measures introduced to counter the financial crisis in 2008/9. 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 the role of domestic savers compared with foreign investors in providing new finance. 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.
Global Financial Sector Dislocation 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 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.
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 the region is at a stage in its growth trajectory when local consumption will account for a rising share of GDP, providing impetus to the trend.