Volatility, Opportunity and Portfolio Upgrades in Q1 2018

Volatility, Opportunity and Portfolio Upgrades in Q1 2018

Dear Investors,

Volatility has clearly returned to the markets in 2018. While fund returns were negative for March and for first quarter of 2018 (Q1), we were able to realise some attractive long-term gains as detailed in the table below, and capitalise on the market volatility to “enhance” the portfolio while still maintaining a healthy cash balance for future opportunities.

THE DEATH OF VALUE?

THE DEATH OF VALUE?

VALUE INVESTING UNDERPERFORMING IN 2017

“Value investing is mired in one of its worst stretches on record, prompting concerns that the investment style favoured by generations of fund managers is losing its effectiveness...

Value fund managers have felt the pinch. The median value fund around the world lagged behind the median growth fund by 7 percentage points in the first half of the year, on pace for the worst underperformance since 2007, according to eVestment.” – WSJ 6 August 2017[1]

VALUE INVESTING CURRENTLY OUT OF FAVOUR

“Investors have pulled $116 billion from U.S. large-cap value funds over the past 10 years, according to Morningstar, with more than one-fourth of that outflow occurring over the past 12 months.” – WSJ – 6 August 2017

PRODUCTIVITY POVERTY

PRODUCTIVITY POVERTY

We have been described as “rock stars” by HSBC, and told by our politicians the record high migration rates and house prices in New Zealand are just problems of success. This may be true but the table below highlights that we as a nation have been in denial about the most important factor that contributes toward long-term economic success - our productivity (or lack of it) - for most of the last two decades.

LESSONS FROM LONDON

LESSONS FROM LONDON

Brexit’ has been the topic “du jour” for several weeks now with a number of interesting points being raised both for and against Britain’s awaiting departure from the EU. A recent Reuters article by columnist Mr. Edward Chancellor challenges populist views on the economic turmoil Britain is currently facing suggesting ‘Brexit’ could instead provide a platform for long-term sustainable economic growth.

ROB CAMPBELL : SPEECH TO ELEVATION CAPITAL FUNCTION AT THE HOLY TRINITY CLOISTERS, PARNELL, AUCKLAND, NEW ZEALAND IS IT IMPORTANT TO INVESTORS?

ROB CAMPBELL : SPEECH TO ELEVATION CAPITAL FUNCTION AT THE HOLY TRINITY CLOISTERS, PARNELL, AUCKLAND, NEW ZEALAND IS IT IMPORTANT TO INVESTORS?

Thank you for the invitation to speak this evening. Chris Swasbrook and his colleagues at Elevation are an interesting option for investors, giving investors the benefits of efficient access to some of the best global value funds in the one instance and in the second to Chris’ unique view of local and global equities. 

HIGHLIGHTS FROM THE COLUMBIA BUSINESS SCHOOL DINNER AND BERKSHIRE HATHAWAY ANNUAL MEETING IN OMAHA, NEBRASKA ON 4 & 5 MAY 2012

HIGHLIGHTS FROM THE COLUMBIA BUSINESS SCHOOL DINNER AND BERKSHIRE HATHAWAY ANNUAL MEETING IN OMAHA, NEBRASKA ON 4 & 5 MAY 2012

Columbia Business School Dinner hosted by Bruce Greenwald with Thomas Russo, Mario Gabelli and David Winters talking. For background, Professor Bruce C. N. Greenwald holds the Robert Heilbrunn Professorship of Finance and Asset Management at Columbia Business School and is the academic Director of the Heilbrunn Center for Graham & Dodd Investing. Described by the New York Times as “a guru to Wall Street’s gurus,” Greenwald is an authority on value investing with additional expertise in productivity and the economics of information.

WHAT ARE “VALUE TRAPS”?

WHAT ARE “VALUE TRAPS”?

 “Is Microsoft stock a value trap?”

“PaperlinX is trading at 0.1x P/B. It must be cheap!”

“Value trap” is a term used in the investment management industry. It describes stocks that appear cheap, but the gap between price and potential value does not close, or, worse, widens. With this Elevation Capital Insights paper we have sought to explain the concept of value traps, and how Elevation Capital tries to avoid being “trapped”.

SEQUOIA FUND ANNUAL MEETING & SHORT BIOGRAPHY OF WILLIAM J. RUANE

 SEQUOIA FUND ANNUAL MEETING & SHORT BIOGRAPHY OF WILLIAM J. RUANE

 We recently attended the Sequoia Fund Annual Meeting in New York (the Elevation Capital Global Value Fund of Funds is an investor in Sequoia) and we thought it might be useful to share with our investors some insights from some of the best capital allocators in the world. The meeting was attended by a group of ~250 people where the portfolio managers and analysts proceeded to answer any / all questions that investors asked for a period of ~2.5 hours. The opening remarks by Bob Goldfarb are provided below:

“We are pleased with our results since we met here a year ago. As long-term investors, we’re particularly proud of our 41-year record. Over the past decade, our firm has undergone some significant changes. We own less Berkshire than we did for many years; we own more stocks than in the past; and the stocks we own represent a broader group of industries and geographies than in the past. 

SETH KLARMAN ON THE PAINFUL DECISION TO HOLD CASH

SETH KLARMAN ON THE PAINFUL DECISION TO HOLD CASH

It wouldn’t be overstating the case to say that investors face a crisis of low returns: less than they want or expect, and less than many of them need. Investors must choose between two alternatives. One is to hold stocks and bonds at the historically high prices that prevail in today’s markets, locking in what would traditionally have been sub-par returns. If prices never drop, causing returns to revert to more normal levels, this will have been the right decision. However, if prices decline, raising prospective returns on securities, investors will experience potentially substantial mark to market losses, thereby faring considerably worse than if they had been more patient.