Six Monthly Newsletter – for the six months to 30 September 2020
(All references to performance are in Sterling terms and for the T. Bailey funds are provided after all ongoing charges).
Over the six-month period to end-September 2020 the T. Bailey Growth Fund rose by 33.34% net of all ongoing charges and the T. Bailey Dynamic Fund rose by 19.32% net of all ongoing charges.
T. Bailey Funds
- Focus on diversification across longer-term themes.
- Aim to preserve and grow capital in real terms (above inflation) over the long-term.
The past six months’ outcome was in sharp contrast to the previous six-month period. While the previous period was heavily and negatively impacted by the effect on the financial markets of Covid-19 arriving in Europe in mid-February, the substantial monetary and fiscal stimuli applied by governments and central banks initiated a recovery in risk assets at the end of March which continued in earnest through the majority of the ensuing six months.
The speed of the recovery in growth equities and credit markets was extreme by historical standards. The rebound in risk asset prices was focused on the beneficiaries of the lockdowns and partial lockdowns in many countries. While the technology companies prospered due to their ability to grow without the constraints imposed by physical restrictions, indeed benefit from them, many traditional economy companies saw their existence threatened – especially in the retail, hospitality and travel sectors.
March’s volatility subsided but periodically reminded financial markets that the economic outlook into 2021 beyond the immediate recession was far from clear. September provided further evidence of that volatility as political influences on both sides of the Atlantic via Brexit uncertainty and the looming US Presidential Election in November raised investor nervousness. Previously, question marks over the high valuations of technology companies had kept volatility elevated. Additionally, financial markets became concerned about the rising levels of Covid-19 during the final weeks of the six-months to end-September.
Developed government bonds have generally held on to the gains of the previous period, but at such low yields that they are mostly below the inflation rates in their country of domicile, meaning they are not without risk. The beneficiaries in debt markets were to be found in credit markets, boosted by central bank support.
With quantitative easing (QE) again prevalent in developed economies, gold has been a sought-after asset for many investors as either a store of value or an alternative currency.
Working from Home
The TBAM team has worked from home over the six-month period. Having tested the ability to work from home on numerous occasions as part of good business practice, the move was seamless. Primarily using Microsoft Teams augmented by Zoom, the whole team has been able to maintain regular daily contact with each other, frequent contact with clients and providers alike.
Not being able to travel has enabled greater productivity. Importantly for our investors, there has been no negative impact from working from home which is likely to continue through to the end of 2020.
April to September 2020
Some of the cash accumulated in February and early March was put to work in late March and throughout April focusing on the winners of the ‘new normal’ – the digital economy. Greater exposure to cash generative, low fixed cost businesses exposed to online retail, distribution, cloud computing and cybersecurity provided the opportunity to give a greater focus to both funds’ equity allocations and proved beneficial to performance.
While activity in both the Growth and Dynamic funds increased in April and May as the focus of both portfolios was moved towards the winners of a Covid-19 environment, the ensuing months saw reduced levels of portfolio activity as positioning is seen to be relevant for a post-pandemic scenario too.
Cash was maintained at close to 10% for much of the period to have ammunition should there be a significant sell-off raising an opportunity to buy good assets at cheaper levels. However, that scenario did not materialise. Gold was added to as a reflection of the increased future inflation risk arising from the amount of QE in play and industrial metals were also added to reflect their relative attractiveness for when economies begin broader recoveries. Investment trust holdings, in line with preferred long-term themes like last-mile distribution and living longer, rebounded strongly.
Published CPI based on latest available data (produced 30 September 2020). Source FE: Total Return (Bid to Bid, Tax UK Net). Past performance is not a reliable indicator of future results. The formal performance benchmark for the T. Bailey Growth Fund is the IA Global Sector Mean. The formal performance benchmark for the T. Bailey Dynamic Fund is CPI+3% per annum. Please see Prospectus or KIID documents for more details of fund objectives.