Monthly Fact Sheet, February 2020

The fund fell-5.9% in February.

We have been optimistic that the global recovery was becoming more synchronised and both capital and resources were extremely cheap. We considered that this would lay the foundations for impressive returns from equity markets. However, the spread of COVID-19 and the lack of understanding surrounding it has introduced a distinct risk that growth will be negatively impacted for the foreseeable future. Our models recognised the risk. We increased bond exposure, reduced resource exposure and we have taken advantage of the strength in equity markets in the first few days of March to modestly reduce equity exposure.

Equity earnings yields are around 6% which is a significant premium to the sub 1% available on 10 year US Treasuries and 3% on investment grade bonds. Of course, earnings will be negatively impacted but there is substantial premium on offer. The time to aggressively harvest that premium is not today, yet equally it seldom pays to lurch to the other extreme based on imprecise information.

Risks have risen and associated impacts from the corona virus spread are hard to predict. We now have a balanced allocation to equities, government bonds and gold and the portfolio remains extremely liquid.