Shareholders are revolting!

One of the noteworthy events of October so far in amongst the party conferences was the UK shareholders overturning the decision of one of the UK’s leading corporates to re-locate from London to Rotterdam in the face of Brexit. As a consequence, Unileaver will remain Unilever. Anyone who has been to Rotterdam might question the sanity of the Unilever board to want to re-locate there from London whatever Brexit might have in stall for them.
Of course, it’s difficult to get through a news day without a politician talking about Brexit. Recent posturing by the government and some of its leading leavers and crucially, some of the European leaders, has brought the possibility of a deal more in focus. Time will tell and that may have changed by the time you read this. Whether any deal makes it through parliament and the subsequent ramifications of it not doing so is too early to speculate on. It’s clearly a fluid landscape with the horizon getting closer.
Of course, managing portfolios with such a binary outcome (remember the twenty fours around the EU referendum) isn’t easy as the following graph showing the past five years of price action for sterling versus the US dollar demonstrates

Avoiding being on the wrong end of binary outcomes is important as is protecting our investors’ capital.
Not the group but Risk Evaluation and Mitigation. Risk is often misunderstood as something to be avoided. To generate above inflation returns, risk is necessary. Without appearing to be condescending, it is the appropriate level of risk that is important and knowing what risks to avoid. The binary outcome that Brexit will probably deliver will create heroes and villains. We have no desire to be either but see ourselves as stewards of your clients’ wealth in delivering consistent UK above-inflation returns in sterling.
Going back to shareholders, not all are revolting but we do feel that investors may overlook what is potentially a misalignment in the investment industry. For many asset management businesses, the goal is about selling product and rewarding shareholders. Read the accompanying statements to semi-annual and annual results, it will likely be about flows and profits before performance and meeting investors’ desired outcomes. This translates into the potential for the investor to come second in a ranking of importance. I think I’d rather be first, which is why alignment of interest is important. At T. Bailey, a privately-held company investing its own founders’ and employees’ money, we will grow our business by treating all investors fairly, delivering outcomes and putting all investors first.
Your Money
We have made few changes to the funds since month-end. Equity market weakness has been used to put cash inflows to work by adding to our security theme.
We retain our caution as stewards of your clients’ wealth and are happy with healthy cash balances that we can continue to put to work as themes we like become cheaper.
Our avoidance of debt/leverage as a negative theme has worked to date especially in the multi-asset Dynamic Fund where the fund’s minimal interest rate/duration risk exposure has avoided the price falls/yield increases in government bonds. The ten year UK government bond (gilt) yield has risen 25 basis points (0.25%) over the past month to 1.72% but still yielding less than inflation and therefore not an attractive asset.

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