Fortem Capital Progressive Growth Fund
UK & EU – For professional and institutional investors only
Switzerland – this is an advertising document for professional and institutional clients as defined by the Swiss Financial Services Act only
Monthly Commentary – 28th February 2023
What a difference a month makes.
After January’s spectacular start, investor optimism was tempered in February as, having eschewed reassessing assumptions based on more positive economic data, investors were forced to take note of the reacceleration in core inflation numbers and reassess where both the peak rate of interest lies and how long rates may remain elevated relative to the ultra-low levels they have become accustomed to in the post-GFC world.
That reassessment of how close to the end of the global tightening cycle we lie caused global equities and bonds to sell-off in tandem once more. Chinese equities were particularly poor performers, after a strong start to the year, as geopolitical tensions overshadowed the continued reopening as various ‘spy balloons’ found their way onto foreign shores.
The Fund returned -0.4% in February.
Two investments observed during the month with one of those investments maturing.
The maturing investment, which was linked to the FTSE 100 & EuroStoxx 50, called at the end of the first year of its life, paying out its full return of 7.7%. The proceeds were reinvested in an investment linked to the Nikkei 225 & EuroStoxx 50, with an annual return of 8.9%, illustrating that terms remain attractive against the environment into which the Fund launched.
The opportunity was also taken to upsize positions with attractive GRYs on the back of inflows.
There is currently over 34% on average before capital is at risk, and over 32% before investments would not pay out their full growth amounts, unchanged from last month.
The Fund’s GRY increased to 10.4% in the event that the underlying equities are flat, and the Fund retains large amounts of intrinsic value.
Of the three scenarios that could play out this year:
- Soft landing (& now ‘no landing’)
- Hard landing
- Higher for longer
The market was increasingly confident at the start of the year that no landing, or at worst a soft landing, had been orchestrated simultaneously with inflation making its way back to target largely by supply chain easing given Fed policy cannot be overly restrictive without some form of landing.
However, recent data has called this assumption into question. For the first time in a long time, central banks have replenished some of the arrows in their quivers to tackle a recession as and when that happens. The idea that there would be a pivot and those arrows would be used before any landing is in sight is fanciful. Investors must get used to the fact that ‘higher for longer’ is likely to remain in place until either inflation does come back down to target, which is likely to prove difficult (ceteris paribus) given structural shifts in economies, or the Fed tighten enough to break something, as they always do. Either way, we are comforted by the protection afforded to investors in the Fund, and the significant returns it can produce in an environment in which equity struggles.
|Hong Kong 50||0.0%||-9.4%|
|US Equity Income||3.4%||-2.5%|
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