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Portfolio Position Update 21.04.2020

Portfolio Position Update 21.04.2020

‘We should not, like sheep, follow the herd in front of us, making our way where others go, not where we ought to go.’

Seneca the Younger


This is the third of our portfolio updates and with the continued elements of uncertainty both in the UK and across the globe our strategy of adding selectively to assets which we believe are undervalued and well placed to take advantage of market recovery continues.

The relative outperformance of ‘growth’ as an investment style versus that of ‘value’ has been well documented in recent years. At the end of March, the 10-year total return of the ‘value’ style lagged the ‘growth’ style by its largest margin in 35 years, surpassing that of the underperformance witnessed during the dot-com bubble at the end of the 20th century. On a price-to-book basis, value stocks now stand at their deepest discount to growth stocks for the data we have available. We could spend the rest of this update turning blue in the face, describing to you why we think this has happened.

Instead we want to talk to you about some of the opportunities in the portfolios today. Rather than worry about market events outside of our control, the team’s sole focus remains on assembling a collection of assets that we believe to be significantly undervalued. In this update we have selected a holding from each of the four main asset classes we invest in on your behalf as examples of our approach:


Origin Enterprises – UK Equities

A new addition to the UK equity portfolio. Origin is an agricultural services group that specialises in helping the farming industry optimise crop yields and economic returns. Management have expanded overseas in recent years in order to reduce the seasonality of cash flows, making the business more robust. Geographies such as Poland, Ukraine and Brazil also offer high growth potential. Poor weather in the UK and Ireland has temporarily affected profits, resulting in the stock falling to an extremely attractive level. On simple metrics, the company trades on a price to earnings ratio of just 8x. Revenue should be resilient in the current environment due to the critical nature of the services the business provides to the food supply chain.


Morant Wright Fuji Yield Fund – Overseas Equities

Morant Wright comprises of an experienced team of six value-oriented portfolio managers, investing in Japan. Their philosophy is to seek companies with strong balance sheets trading at low valuations. The portfolio trades at a price to book of less than one, and a large portion of the companies they hold have cash and/or investments making up a significant portion of their market capitalisation, net of liabilities. The Fuji Yield Fund was set up by Morant Wright to benefit from the significant corporate change taking place in Japan. Part of this change is the intention of many businesses to return excess capital to shareholders, via dividends and share buybacks.


Absalon Emerging Market Corporate Debt Fund – Fixed Income

The team at Absalon, based in Denmark, have built a reputation in the fixed income markets for their value philosophy, which they apply to global high yield markets, including debt in the emerging markets (EM). Paying no attention to the index, the team set out to find the most mispriced opportunities within EM credit. EM corporate debt ratings are tied to the respective sovereign debt rating so when one of the three main rating agencies cut its rating for a country, rating cuts to domestic credits are also triggered. Often, there has been no fundamental change to the business which has issued the debt and the spread/yield on offer should adequately compensates the investor for the risk taken.


Merian Chrysalis – Specialist Assets

In the COVID19 crisis the trust has dropped down to trading at a discount to its initial public offering price and its last stated asset value. Whilst many of its portfolio investments have little or no debt and the vehicle itself also has cash on its balance sheet, this appears harsh. The top six positions in the portfolio which account for 87% of the asset value, are online-based businesses and Merian have reported that trading has so far been robust throughout the government-imposed shutdown.

One example is The Hut Group which owns an e-commerce platform, delivering health and wellness products directly to the consumer. The business recently announced its intention to employ 500 more staff across its manufacturing and distribution sites in order to cope with a surge in demand for its products. Meanwhile, the discount to net asset value gives the opportunity to gain exposure to Graphcore which has developed an exciting Intelligent Processing Unit (IPU) with interest and cooperation from the biggest IT companies around the world.


We hope the above provides some detail into our approach, as well as an insightful look to see how and where your money is invested.

We have seen some improvement in the funds in recent weeks, as markets have staged a degree of recovery and some of the more arbitrary and extreme valuations in the funds have started to revert to more sensible levels. This said, we remain very excited about the valuations now on offer and we continue to add to positions. We’d again like to end by thanking you for your continued investment.



“Market capitalisation” – This refers to the size of a company in terms of the total value of its shares (other ways of measuring the size of a company might be in terms of total revenue or total assets). To calculate current market cap, one simply multiplies the total number of shares in issue with the current share price.

“Price to earnings ratio” – This is the ratio of a company’s share price to the company’s earnings per share. It is a tool in helping decide if a company is over or undervalued.

“Price to book ratio” – This is the ratio of a company’s share price to the ‘book’ value per share. Book value is the company’s total assets minus total liabilities that are recorded on the balance sheet.


Past performance is not a guide to future returns.

The views expressed are those of Tom Delic at the time of writing and are subject to change without notice. They are not necessarily the views of Seneca Investment Managers Limited and do not constitute investment advice. Whilst Seneca Investment Managers has used all reasonable efforts to ensure the accuracy of the information contained in this communication, we cannot guarantee the reliability, completeness or accuracy of the content. This communication is for information purposes only and should not be read as an offer or recommendation to buy or sell any securities. If you are unsure of any investment decision you should seek a professional financial advisor. Seneca Investment Managers Limited (0151 906 2450) is authorised and regulated by the Financial Conduct Authority and is registered in England No. 4325961 with its registered office at Tenth Floor, Horton House, Exchange Flags, Liverpool, L2 3YL. All calls are recorded. Your capital is at risk. FP20-099.

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