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
Last month’s ‘crisis’ was short lived as equity markets swiftly returned to all time highs in
October, leaving global equities 20% higher than where they started the year. Investors were buoyed by positive earnings data in the US as well as positive economic data elsewhere after a summer lull. In addition, there was some respite from negative news regarding China’s beleaguered property sector after Evergrande made an interest payment within the 30 day grace period afforded to firms before default.
Investors’ attention should instead be drawn to the bond market, where yields were volatile over the month as investors continue to grapple with a phenomena that is completely new to a significant portion of them; inflation. The 10y US treasury yield reached as high as 1.70% before retracing all the way back to 1.55%. Of equal note were the much larger increases in shorter-dated yields, which caused curves to flatten significantly, further exacerbated by numerous hedge funds being stopped out of ‘steepener’ trades. The yield curve phenomena will be written on more extensively in the Get Him To The Greek to be published this month, but suffice to say the eccentric moves seen in curves, not for the first time in the past 18m, perhaps illustrate how investors are struggling to price risk in an asset class that has been considered more or less riskless for so long.
The Fund was down 0.45% over the month.
The biggest detractors, unsurprisingly, were the rates curve strategies, two of which are US yield curve ‘steepeners’. The US yield curve flattened at its most aggressive rate since 2011 during the month. From here, if inflation does prove transitory, one would expect that the front end has gone too far, and the curve to steepen courtesy of the front retracing. If it is persistent, then the front end is correct and it is the back end that needs to catch up, again steepening the curve.
Elsewhere, the rates volatility strategies were the most profitable, benefitting from the turbulence in bond markets, which it should be noted still remains minor whilst the transitory narrative is widely accepted.
The Fund’s remaining equity quality exposure was sold during the month. Companies with weaker balance sheets in the US have been rewarded thus far this year. However, if inflation is to prove non-transitory, and debt does become more burdensome for a highly leveraged financial system, it is likely that there will be stress in credit markets, something already being seen in China. Therefore, the position has been replaced with a purer protection against volatility in credit markets, through long CDS positions on both European and US credit markets, bought at historically low levels.
To the end of October, the Fund is down 1.39% for the year, albeit some of this has already reversed out in November. This type of drawdown is not unusual for the strategies, particularly when equities are running at 25% annualised, and has been seen before; from 2011 to 2013 there was a drawdown of ~ 3%.
It would seem that the worst of the headwinds of commodities steepening into record backwardation, yield curves flattening at their fastest rate in a decade, and companies with the weakest balance sheets being rewarded the most look to have likely passed. And, looking at the current environment of rising inflation concerns, the inevitable re-emergence of Chinese liquidity issues in its property market, and a general consensus that the performance enhancing drugs of endless money printing and artificially low rates are going to have to be taken away from the market at some point. Structural uncorrelated diversifiers with some more convex defensive trades are likely to serve investors well; it may be the only diversification that is left.
|Hong Kong 50||-4.6%||3.3%|
|US Equity Income||n/a||7.0%|
– This document has been issued and approved as a financial promotion by Fortem Capital Limited for the purpose of section 21 of the Financial Services and Markets Acts 2000. Fortem Capital Limited registration number 10042702 is authorised and regulated by the Financial Conduct Authority under firm reference number 755370.
– This document is intended for Professional Investors, Institutional Clients and Advisors and should not be communicated to any other person.
– The information has been prepared solely for information purposes only and is not an offer or solicitation of an offer to buy or sell the product.
– Data is sourced from Fortem Capital Limited and external sources. The data is as at the date of this document and has been reviewed by Fortem Capital Limited.
– Information, including prices, analytical data and opinions contained within this document are believed to be correct, accurate and derived from reliable sources as at the date of the document. However, no representation or warranty, expressed or implied is made as to the correctness, accuracy or validity of such information.
– Fortem Capital Limited assumes
no responsibility or
liability for any errors, omissions or inaccuracy with respect to the information contained within this document.
– All price and analytical data included in this document is
intended for indicative purposes only and is as at the date
of the document.
– The information within this document does not take into account the specific investment objective or financial situation of any person. Investors should refer to the final documentation and any prospectus to ascertain all of the risks and terms associated with these securities and seek independent advice, where necessary, before making any decision to buy or sell.
– The product may not be offered, sold, transferred or delivered directly or indirectly in the United States to, or for the account or benefit of, any U.S. Person.
– The Fortem Capital Alternative Growth Fund is a Sub-Fund of Skyline, an open-ended investment company with variable capital incorporated on 1 June 2010 with limited liability under the laws of Ireland with segregated liability between Funds. The Company is authorised in Ireland by the Central Bank of Ireland pursuant to the UCITS Regulations.
“NOTICE TO INVESTORS DOMICILED OR RESIDENT IN SWITZERLAND – The interests in the UCITS Fund and any related services, information and opinions described or referenced in this document are not, and may not be, offered or marketed to or directed at persons in Switzerland (a) that do not meet the definition of “qualified investor" pursuant to the Swiss Federal Act on Collective Investment Schemes of 23 June 2006 (“CISA") (“Non-Qualified Investors"), or (b) that are high net worth individuals (including private investment structures established for such high-net worth individuals if they do not have professional treasury operations) that have opted out of customer protection under the Swiss Federal Financial Services Act of 15 June 2018 (“FinSA") and that have elected to be treated as “professional clients" and “qualified investors" under the FinSA and the CISA, respectively (“Elective Qualified Investors").
In particular, none of the information provided in this document should be construed as an offer in Switzerland
for the purchase or sale of the interests or any related services, nor as advertising in Switzerland for the interests or any related services, to or directed at Non-Qualified Investors or Elective Qualified Investors. Circulating or otherwise providing access to this document or offering, advertising or selling the interests or any related services to Non-Qualified Investors or Elective Qualified Investors may trigger, in particular, approval requirements and other regulatory requirements in Switzerland.
This document does not constitute a prospectus pursuant to Articles 35 et seqq. FinSA and may not fulfil the information standards established thereunder. No key information document pursuant to Swiss law has been established for the interests. The interests will not be listed or admitted to trading on a Swiss trading venue and, consequently, the information presented in this document may not fulfil the information standards set out in the relevant trading venue rules."