World equity markets continued their post March recovery, albeit with a degree of hesitancy, which is reflected in the low single digit rises seen across major equity market indices. As such, global equities rose 2.9%0F[1] and US equities, as measured by the S&P 500, rose similarly by 1.5%. Risk appetite for smaller companies eased a little with the MSCI Word Small Cap index’ returning 2.1%, though the NASDAQ composite, which has been exceptionally strong year to date managed to return a respectable 5.5%1F[2]. We have previously commented on the recent strength of FAANG2F[3] stocks, and for completeness’ sake note their June performance of 7.7% thus retaining their influence on broader market returns.

Sovereign fixed income markets were generally benign – the Bloomberg Barclays US Treasury Total Return index3F[4] was flat over June.  European 10-year yields dropped a little (from -0.4% to -0.45%, as measured by the generic Eurozone 10-year bond index (source Bloomberg)).  Global High Yield bonds continue to maintain their momentum rising by 2.2%, and have now delivered 21% from their 23 March trough to end June4F[5]. Global investment grade bonds spreads (i.e. their yield vs. the yield of government bonds), having tightened over the last few months, widened a little (by 18bps5F[6]) though the direction of travel still seems to be one of tightening and reflects the increased appetite for riskier assets.

Global commodities gained slightly over the month with the Bloomberg Commodity index (total return) up 1.8% in Sterling terms6F[7]. Oil prices continued to rally heavily with Brent crude up 14.4%, following the wide loosening of lockdown conditions and the gradual reopening of many economies. In currency markets, whilst US dollar strength vs. sterling continues to enhance sterling investors’ returns from US assets on a year to date basis, sterling has continued its recovery vs. the dollar post March, with sterling strengthening by 7.9% since 19 March (and +0.5% in June).

Markets do remain exceptionally nervous on how COVID-19 is spreading in the US and Latin America, and on 2^nd and 3^rd wave resurgence in Europe through Q3 and Q4 this year. The impact on world growth remains pronounced and is projected at -4.9%7F[8] for 2020 with a now fairly universal acceptance that the recovery time will be slower than initially expected, particularly as the impact on consumer behaviour and supply line dynamics is better understood, amongst many other factors.

Performance and activity

Over June the fund’s Net Asset Value (NAV) rose 2.9%, and the share price rose 3.4% (total return basis).  The FTSE World Total Return Index, which the Company aims to outperform over the long-term, returned 2.9% in sterling terms.  The Company’s NAV is down 3.9% for the year at end June 2020 (FTSE World Total Return, 5.5%)8F[9].

The best performing sectors in June were commodities and hedge funds, contributing, respectively, 1.0% and 0.6% to performance. Within the latter, our holding in the Blackrock European Hedge Fund was the only positive contributor and thus accounted for all that sector’s performance. We only have one holding in the commodities sector, our Merrill lynch Commodities strategy, which delivered the positive performance from this sector.

Our aggregated holdings in both private and public equity delivered negative performance (public equity -1.1%, private equity -2.6%). Within private equity, 3i, Riverstone and Safeguard Scientifics were all negative, with many of these names giving back gains seen post the March sell down in markets. Our holding in Pantheon International was up however, rewarding our decision to add this name to the portfolio (albeit in small size) post the market correction.

In our May factsheet we noted that our Board had given notice of a general meeting (to be held on 3 July 2020) to vote on the adoption of a realisation policy for this trust.  We also reiterated that we would not be adding to any long-term horizon investment strategies or initiating any new positions given the Board’s endorsement of that realisation policy. The realisation policy was supported by shareholders at that 3 July meeting and accordingly the portfolio is now being managed to a realisation investment strategy.

Our intention is to update the market on the realisation progress through our monthly factsheets. We will announce at the end of this section our most recently available cash balance (both in terms of absolute cash and as a percentage of concurrent NAV) and provide details of full exits from investment positions on a lagged basis (i.e. the July factsheet (which will be released in late August)) will note only full exits completed in July, such that residual holdings still held or actively being worked in the market are not disclosed). Depending on rapidity of progress we may further defer disclosure such that market focus is not placed on an increasingly smaller listed portfolio, which may put us at a trading disadvantage.  As such the realisation update follows below:

Realisation update

As at 22 July, cash as a percentage of the NAV (at 22 July) stood at 27.5% or approx. £34m. We note that the Company has no borrowings.

July full realisations (to 22 July) will be reported in the August factsheet.

Glossary

Sovereign fixed income: fixed income instruments issued by the government

Yield: The level of income on a security, typically expressed as a percentage rate

High yield bonds: bonds that pay higher interest rates

Commodities: A physical good such as oil, gold or wheat. The sale and purchase of commodities in financial markets is usually carried out through futures contracts.

Net Asset Value (NAV): The total value of a fund’s assets less its liabilities.

Investment grade bonds: a bond with a rating that signifies a municipal or corporate bond presents a relatively low risk of default

[1] FTSE World Index, in Sterling and total return terms. Source, Bloomberg.

[2] All index returns in Sterling and total return terms. Source, Bloomberg.

[3] Acronym for the 5 largest US tech stocks (Facebook, Apple, Amazon, Netflix, Google (Alphabet))

[4] Unhedged, USD terms, source Bloomberg

[5] Bloomberg Barclays Global High Yield Total Return Index unhedged

[6] Using the BarCap US Corporate High Yield YTW (Yield to Worst) –10 year treasury spread index. Source, Bloomberg.

[7] Source Bloomberg.

[8] Source: IMF World Economic Outlook

[9] Sources: Morningstar, Bloomberg, Janus Henderson.