If someone had suggested at the start of 2016 that the UK would have voted to leave the European Union, Donald Trump been elected President of the United States and Matteo Renze have lost a referendum on the most basic reforms of an unwieldy Italian constitution, they would have been told to walk round the building.
If that person had further suggested that coal prices would double to $200 a ton, gold put on 25% and then drop 10% on the Trump win, Teresa May have replaced David Cameron as PM and the FTSE end the year 10% in the black at 7000, they would probably have been consigned to the investment version of a straitjacket.
Navigating though all this has been a challenge for fund managers in 2016.
Fortunately for us we’re lucky to have a great team at South River Asset Management and we’re ending the year in the top half of peer groups across our strategies from our cash+ funds through to our diversified funds and equity based multi asset funds and specialist funds like the gold fund.
Also it seems expecting the unexpected and having to adjust to it is pretty much part of the job spec these days. In this case it meant weighting up portfolios with UK exporters like BAE, BP, BHP, BURBERRY, HSBC and ROLLS ahead of the vote for Brexit, hedging out our sterling exposure at $1.60 and buying reasonable exposure to gold; then ahead of the Trump win, hedging further our exposure in favour of energy and other uncorrelated assets like BB rated corporate bonds in the companies of unfashionable but worthy businesses like glass bottler SAINT GOBAIN EMBALLAGE and paints manufacturer MATERIS that offered yields a year ago of 7%.
All of this means we’ve gained 23% in a typical South River Asset Management multi asset fund. Even the Cautious funds have improved with Richard L and Richard S providing the crucial added value we’ve needed in income both equity and fixed, with these funds finally getting some juice into them and Cautious Sterling 2% up after fees.
And Amanda’s gold fund’s been a great success, trebling in size in its first year and closing 2016 in 4th place out of all 2,000 UK based funds in the Investment Management Association and this month being selected to appear on the prestigious Standard Life platform, our first fund so to be.
Finally our profitable institutional business has been going great guns with a doubling of assets under administration to £400m.
All this means too that our longer term numbers are looking healthier with a 40% return net of all fees over five years and achieved with volatility two thirds that of the UK equity market. (14% versus 21%)
Amanda’s got a great blog out this week summing up the year and putting a longer term perspective on what wins for the Brexit and Trunp crowd are all about and meanwhile we’re preparing our strategy for 2017.
If 2016’s any guide consensus views may be upended again and may mean the broad consensus on the dollar, the Trump rally and China will be challenged. We’ll also explain why we’re bullish on titanium in Greenland, tin in Congo and why uranium is on the verge of a bull market. Finally we’ll explain why reunification of Korea and a solution to the political impasse on Europe may not be so unlikely next year.
I leave you with the South River Asset Management 2016 Xmas blog, penned by Amanda
A very happy Christmas from all the South River Asset Management team
Some of us questioned whether an “ever closer union” melting pot of vastly different cultures and countries was really going to work or was legitimately better than the one we had. For this we were called little Englanders. We questioned whether large trade unions were truly superior to a customised set of bilateral trade agreements that met the needs of both countries in question. For this we were called uneducated. We questioned whether or not large scale immigration over which we had no control was really superior to an immigration system that let in a balanced number of immigrants that filled jobs that needed to be filled rather than opening floodgates and creating unnecessary competition in balanced labour markets. For this we were called racist. We questioned whether or not 60m/400m people, or 1/28 countries could every really have a say and be properly represented. For this we were called undemocratic. We questioned why a trading nation upon which once the sun never set, that was the birthplace of the industrial revolution, the traditions of which gave birth to the most successful trading nation in the world, suddenly was incapable of surviving without privileged access to the European Single Market. For this we were called naïve.
Well the jury is in, the people have spoken. The political elites living in their ivory towers, in bed with big business and the media have deemed us populist (usually accompanied by a bit of sneer and the rolled eyes and a sigh the way you would refer to the less educated and slightly unfortunate), but I am ok with that. I don’t mind being with the people, I think our governments and systems have an obligation to try raise the standards of all the people in our society not just the privileged few. If that makes me a populist so be it. In the last 20 years while our GDP’s have grown, the quality of life and wealth of the majority of working class people has actually gone down when adjusted for inflation, and while those people have felt it, and may not have known how to express it in economic terms, they did it with the last true right of western civilisation, their vote. The majority were able to admit the European experiment has failed. We are going to try something else, it may fail as well but at least we are going to try. If nothing else our decision has inspired others in America and Italy to also use their votes to cry foul. We have started a revolution that is defending the principles of liberal democracy, that thing that founded one of the most successful empires in world history. We want governments and systems that are by the people, of the people, and for the people. There are those of us that have been out of favour for years, shunned and ridiculed by our peers, beaten down by the tyranny of the politically correct media sponsored establishment. Our views have been ignored and dismissed.
But now due to a wonderful thing known as democracy, I cry from the rooftops “Free at last, Free at last, Thank God almighty we are free at last.” They might no longer want me at civilised dinner parties, but I am happy with a beer round the pub.(actually, I don’t drink beer but cider from Somerset will do!)