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Portfolio Positioning Update – January 2021

Portfolio Positioning Update – January 2021

Market Update

Any suggestion that the beginning of the New Year would mark the end of a series of unforgettable events that defined 2020 were quickly extinguished by a tumultuous January.  It started with the announcement of a third national lockdown across England, quickly followed by the storming of the US Capitol Building on 6th January and ended with a high-profile battle in the US equity markets between retail and professional investors.

Equity markets were mixed over the month with UK large and mid-cap stocks giving back some of the gains we saw into the year end, however small cap stocks continued to rise.  US and European large cap stocks also fell, while across Asia and emerging markets, returns were positive.  Sovereign bonds were weak as the longer end of the yield curve steepened, leading to negative returns across investment grade corporate debt.  High yield however was positive as spreads tightened, particularly in the lowest rated debt.

Across commodities, oil rallied to its highest level in a year, while gold’s more volatile sibling, silver, continued its strong rise in price.  Gold gave back some of its strong 2020 gains as US real yields rose, albeit remaining firmly in negative territory.  Elsewhere, UK house prices reached an all-time high of £250,000, as the stamp duty holiday and ultra-low interest rates continue to keep the housing market buoyant.

Portfolio Update

The speed at which equity markets have recovered since the first quarter of 2020 has been quite remarkable, none more so than in the United States.  For comparison, while it took the US market just 125 days to recover back to its peak in February, the prior two bear markets of 2007-09 and 2000-02 took 1,375 and 1,802 days, respectively.  The US equity market has been an area where we have struggled to find value in recent years.  Despite the sharp recovery last year however, we were able to make an investment in the Conventum Lyrical Fund in June.  Since the end of June, the Fund has returned 38% versus an index return of 21%.  While returns have been very good, the Fund still trades at half the price-to-earnings multiple of the wider index.

Within UK Equities, SaaS provider, dotDigital Group, reported a strong set of results during the month, as it continues to enhance its marketing automation and customer engagement platform.  Average revenue per customer increased by 20% over the reporting period, driven by strong organic growth.  Its strategic partnership with Shopify, an e-commerce platform business for online retailers, was a particular highlight, with revenue growing by 115%.

Schroder Public Private Trust delivered two pieces of positive news over January.  Firstly, the Company announced the sale of holding Kymab, a clinical stage biopharmaceutical business, at a significant premium to the carrying value, while later in the month, a further sale of a basket of seven of the Company’s holdings were also sold.  Proceeds from both sales will be used to pay down the existing credit facility, in addition to providing follow on capital to the remaining holdings.  With the potential for new holdings to be introduced to the portfolio by the highly experienced Schroders team, we remain optimistic about the future of the trust.

Important Information

For professional investors only.

This communication represents the views of Tom Delic at the time of preparation and are not necessarily those of Seneca Investment Managers Limited. His views may be subject to change and should not be interpreted as 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 document is provided for the purpose of information only. Seneca Investment Managers Limited 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. FP21 028.

 

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