Unless otherwise stated, returns are MSCI Indices expressed in local currency terms. The return for the UK equity market uses the FTSE All Share Index in local currency terms.
Global equities continued to move higher, rising 3.4% in US dollar terms and 3.3% for sterling-based investors. Eurozone equities led the way, helped by German stocks. Japanese equities were the biggest laggard, rising 2.0%. Growth and quality styles continued to lead the way, although financial stocks led the way in sector terms. US healthcare companies were negatively impacted by political rhetoric.
Sovereign bond yields broadly rose, with UK gilts one of the largest movers. Credit spread compression led to corporate bonds delivering positive returns led by high yield, where spreads have retraced most of the widening seen in late 2018. Emerging market debt saw more mixed performance. The oil price continued to rally, rising over 6% during the month, while currency movements were fairly muted overall.
The S&P 500 index drifted quietly to a new all-time high late in April, accompanied by a general easing in investor concerns and mirrored by the decline in the VIX Index. Investors have taken comfort from a few green shoots of economic improvement, although it still remains unclear what scale of rebound should be expected. The weaker growth outlook has kept central banks in cautious mode, maintaining conditions for strong returns from risk assets generally. Reporting season is seeing companies broadly exceed expectations, helping sustain the rally.
The deadline for the UK leaving the European Union was again extended, to 31 October. However, the UK may leave earlier if an agreement can be reached although it must now, in all likelihood, take part in the European Parliamentary elections, despite an ‘imminent’ Brexit. The elections are expected to spell a heavy defeat for the Conservative Party and uncertainty continues to be a concern for the UK corporate sector as firms seek to invest for the future, without a clear picture of the operating environment.
Performance and activity
Over the month of April the fund’s Net Asset Value (NAV) gained 0.6% whilst the share price return was 2.6%. Over the same period the Company’s Association of Investment Companies (AIC) Flexible Investment peer group returned 1.5% in share price terms (Source:Morningstar). The FTSE World Index, which the Company aims to outperform over the long-term, returned 3.5%. A relative underperformance of 0.9% in share price terms (Source:Bloomberg) and 2.9% in NAV terms.
The best performing sector during the period was private equity. Our holdings in listed private equity investment trusts contributed the majority of this return. 3i Group performed well as the market built in positive results to be announced in May with high expectations on it largest position ‘Action’. We trimmed back on the holding throughout the month as 3i began reaching historical premium highs. Harbourvest Global Private Equity Ltd also continued its rally in April outperforming global equity markets. Safeguard Scientifics Inc had a good month and markets reacted positively to its results as it again highlighted their focus on trying to liquidate positions at significant uplift to carrying value.
The credit sector generated positive returns. The majority of this came from Axiom European Financial Debt Fund Ltd. The fund invests in a diversified portfolio of regulatory capital securities issued by European Financial institutions and seeks to benefit from investment opportunities presented by the Basel III and Solvency II transitions in Europe.
Property was the only sector which was negative during the period. This was in its entirety driven by our (legacy) holding in Ceiba Investment Ltd. The company re-listed late last year and despite solid underlying performance, the discount has continued to widen. Sentiment is relatively poor due to tighter US sanctions on Cuba. Summit Properties Ltd recovered further from its fall in the prior months. We took some profits but the underlying story remains strong.
The commodity, hedge fund and public equity sectors were approximately flat for month. Worldwide Healthcare was the only significant detractor in our public equity sector. The holding was hurt by political noise and has since recovered relative to the wider market. This was balanced by our holding in Eurostoxx 50 Dividend Futures which rallied with equities. The only holding which detracted from performance within the hedge fund sector was Majadie Tortortise but again Blackrock European Hedge Fund made the majority of this back for HAST and the pair continue to work in an uncorrelated fashion to each other. Within the hedge fund sector we also topped up our holding in Sagil Latin American Opportunities Fund.
The rally in risk assets since December’s lows has taken many equity indices back to the levels seen in mid-2018. US and emerging market equities now look relatively expensive, while credit spreads have contracted towards the post-2008 lows. Similarly, the 10-year US Treasury has returned to levels seen 18-months previously when interest rates were 1.25% lower. Such a market backdrop makes investing more difficult as returns are likely to be lower. Policy makers have pushed most assets back into expensive territory and investors need to remain vigilant. A more flexible, actively managed approach can look to benefit from the pockets of value that remain while, at the same time, avoiding expensive pitfalls.