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Short-term volatility presents opportunities

sponsored by Seneca |

Tom Delic, Fund Manager at Seneca Investment Managers, explores recent market volatility.

Over the past month, markets have fallen substantially owing to the spread of Covid-19 and the related global actions. And they were handed a second major event to deal with as Russia failed to join production cuts with nations in the Opec oil exporter group, leading to dramatic falls in the price of oil.

The combination of events has seen equity markets enter a bear territory, ending the long bull run of more than a decade. Investor confidence has been significantly reduced and we are seeing indiscriminate selling across most markets.

Over this period, we are working hard to position portfolios in a way that our investors can benefit from significantly when we enter the next bull market. To do that requires remaining rational when those around you are at their most irrational.

Global efforts to mitigate the effects of Covid-19 are just beginning and China provides evidence that it can be done. It is impossible to predict when life will return to normal but using history as a lens to view the world, and in particular financial markets, we believe the best course of action is to take the long-term view.

When taking a long-term view and applying a value philosophy, short-term volatility presents opportunities of which there are now many. We entered this period with reasonable cash levels and a high weighting to short-duration, high-yield credit, both of which are being used as sources of funding to slowly add to positions across UK Equities, Overseas Equities and Specialist Assets.

 In the UK, we are reviewing every single position, re-evaluating the original investment thesis and, where appropriate, adding to them. While there will be major disruption to businesses over the short-term, we are encouraged by our reviews and conversations with senior management teams.

 Across Overseas Equities, our managers are reporting on extreme valuations in the respective markets in which they invest, particularly in Asia and Japan. We have added to positions and will look to add further when appropriate.

 In Specialist Assets, our diverse selection of holdings covers infrastructure, property, specialist lending and music royalties, including International Public Partnerships, LXi REIT and Hipgnosis Songs Fund. Investors who were willing to pay premiums to net asset value (NAV) for some of our positions, are now unwilling to pay a discount. With a long-term, rational assessment of the underlying assets, this does not make economic sense to us. We have therefore been adding on weakness.

We also hold a meaningful position in physical gold (via an ETC, or exchange-traded commodity) and gold mining equities. While gold miners have suffered with wider equity markets so far, physical gold has performed well. With massive monetary and fiscal stimulus being announced by governments across the world, we continue to believe that gold and gold-related assets will prove a useful diversifier in the months and years to come.

There is no question that we are collectively experiencing some of the most challenging times in the post-war era. We are working very hard to identify further opportunities to add to positions and while current volatility may be unsettling, history shows the patient will be rewarded.

Source: Bloomberg Finance LP, Seneca IM

The views expressed are those of Tom Delic at the time of writing and are subject to change without notice. They are not necessarily the views of Seneca Investment Managers Limited and do not constitute investment advice. While Seneca Investment Managers has used all reasonable efforts to ensure the accuracy of the information contained in this communication, we cannot guarantee the reliability, completeness or accuracy of the content. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment. Before investing you must read the key investor information document (KIID) as it contains important information regarding the funds, including charges, tax and fund specific risk warnings and will form the basis of any investment. The prospectus, KIID and application forms are available in English from Valu-Trac Administration Services (01343 880344).Seneca Investment Managers Limited, the Investment Manager of the Funds (0151 906 2450) is authorised and regulated by the Financial Conduct Authority and is registered in England No. 4325961 with its registered office at Tenth Floor, Horton House, Exchange Flags, Liverpool, L2 3YL. All calls are recorded. Your capital is at risk. FP20 089. 

Seneca

Seneca Investment Managers is a long established boutique investment house, based in Liverpool, with a national client base. Investors range from institutions such as pension funds and charities, through to financial advisers, discretionary private client managers and personal investors. 

Where we differ from other providers of multi-asset investment products is in our ‘value’ based approach. This means we pride ourselves on the ability to identify and invest where there is both quality and unrecognised value.

Simply put, we create funds that combine stocks and shares in companies (equities) with fixed interest investment vehicles (bonds or debts) and a wide range of specialist assets such as property, private equity, specialist finance and infrastructure. We believe our multi-asset value approach gives us the edge in delivering the right outcomes for our investors.

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