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Portfolio Position Update 23.03.2020

Portfolio Position Update 23.03.2020

Portfolio Position – Seneca Investment Managers

Market Overview

As you will know over the past month markets have fallen substantially due to the spread of COVID-19 and the related actions taken around the globe. Markets were handed a second major event to deal with as Russia failed to join production cuts with OPEC, leading to dramatic falls in the price of oil.

The combination of events has seen equity markets enter a bear market, ending the long bull market of more than a decade. Investor confidence has been significantly reduced and we are seeing indiscriminate selling across most markets.

Over this period, we are working hard to position portfolios in a way that our investors can benefit significantly when we enter the next bull market. To do that requires remaining rational when those around you are at their most irrational.

Global efforts to mitigate the effects of COVID-19 are just beginning and China provides evidence that it can be done. It is obviously impossible to predict when life will return to normal but using history as a lens to view the world, and in particular financial markets, we believe the best course of action for the funds is to take the long-term view.

Portfolio Activity

When taking a long-term view and applying a value philosophy, short term volatility presents opportunities of which there are now many.

We entered this period with reasonable cash levels and a high weighting to short duration high yield credit, both of which are being used as sources of funding to slowly add to positions across UK Equities, Overseas Equities and Specialist Assets.

In the UK, we are reviewing every single position, re-evaluating the original investment thesis and where appropriate, adding to them. Whilst there will be major disruption to businesses over the short-term, we are encouraged by our reviews and conversations with senior management teams.

Across Overseas Equities our managers are reporting on extreme valuations in the respective markets in which they invest, particularly in Asia and Japan. We have added to positions and will look to add further when appropriate.

In Specialist Assets we hold a diverse selection of holdings across infrastructure, property, specialist lending and music royalties, with examples such as International Public Partnerships, LXi REIT and Hipgnosis Songs Fund. Investors who were willing to pay premiums to net asset value for some of our positions, are now unwilling to pay a discount. With a long-term, rational assessment of the underlying assets, this does not make economic sense to us. We have therefore been adding on weakness.

We also hold a meaningful position in physical gold (via an ETC) and gold mining equities. Whilst gold miners have suffered with wider equity markets so far, physical gold has performed well. With massive monetary and fiscal stimulus being announced by governments across the world, we continue to believe that gold and gold related assets will prove a useful diversifier in the months and years to come.

Performance

Short term fund performance has been impacted and whilst we had been fairly conservatively positioned prior to market events, the rapid and indiscriminate nature of the sell-off has seen what we considered to be attractive value opportunities fall significantly. As explained earlier, we view some of these moves as irrational.

Conclusion

There’s no question that we are collectively experiencing some of the most challenging times in the post-war era. We are working very hard to identify further opportunities to add to positions and whilst current volatility may be unsettling, history shows that the patient will be rewarded. Finally, we’d like to conclude in thanking you, the investor for what is an unsettling time both professionally and personally. Our appreciation for your support cannot be understated, and we are working hard to repay this in the years ahead.

 

Source: Bloomberg Finance LP, Seneca IM

The views expressed are those of Steve Hunter 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 provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment. Before investing you must read the key investor information document (KIID) as it contains important information regarding the funds, including charges, tax and fund specific risk warnings and will form the basis of any investment. The prospectus, KIID and application forms are available in English from Valu-Trac Administration Services (01343 880344).Seneca Investment Managers Limited, the Investment Manager of the Funds (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 086.

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