Markets continue to be extremely challenging as many officially entered bear market territory during the month. Apparently, a bear market is one which has retraced 20% from its peak. However, whether technically in a bear market or otherwise, investors have been whiplashed over the last few months and risk appetite is unsurprisingly at very low levels. Our experience is that bear markets progress down a relatively well defined path culminating in capitulation towards the end of the cycle. The general market has not got to capitulation levels as yet and therefore any rallies are likely to be temporary.
However, the investment trust sector appears again to be running ahead of the general market with many funds now at capitulation levels. Discounts on many asset classes are at extreme levels with property, private equity and smaller companies at levels not seen since the dark days of 2001-3. Although these discounts appear attractive, it would be foolish to assume that there will be a material recovery in the short term.
It is disappointing that many of the funds that we believed would offer defensive characteristics have been hit along with the more market sensitive investments. This is an opportunity to pick up cheap stock for the longer term and we continue to make small additions in those names where we are confident of the underlying fundamentals.
SVM Global Fund’s portfolio is structured into five broad themes. Specialist investments include those exposed to specific industries or areas such as Eastern Europe or emerging markets.
Property exposure is concentrated in emerging Europe and the less mature areas of developed Europe. Hedge funds represent exposure less dependent on stockmarket direction.
Funds with investments in resources cover a broad range of commodities both in exploration and production. Private equity exposure is targeted towards those funds in the realisation phase of the private equity cycle.