Market Update - 5 November 2018

By
Andrew Clifford,
User

Andrew co-founded Platinum in 1994 as the Deputy Chief Investment Officer, having worked alongside Kerr for several years at Bankers Trust and perfecting the craft of.. More

06 Nov 2018

Following the recent market volatility globally. Andrew Clifford has provided a brief overview. 


2018 has been difficult thus far.  We suggested in February that markets may have set near term highs – this turned out to be true for most markets globally with the exception of the US, which continued to rise on narrow leadership of high growth tech and biotech stocks, until October, when these high growth stocks also started to roll over.

We have not been inactive over the year, reducing our longs by selling winners, retaining the cash raised thereby and adding to shorts, as shown in the table below.
 

 

Dec-17

Mar-18

Jun-18

Sep-18

 Oct 18

Long 1

93%

90%

87%

84%

80%

Cash

7%

11%

13%

16%

20%

Shorts

12%

14%

15%

15%

18%

Net 2

88%

76%

72%

69%

62%

Source:  Platinum Investment Management Limited

In recent weeks shorts have indeed provided protection to the portfolio, but have failed to fully offset losses incurred on the long side. It has often been the case that in market sell offs that the companies in our portfolio don’t perform better than the broad market, despite our assessment of their superior value.  Simply, we are choosing our investments from a subset of stocks that are out-of-favour with investors, and at times of uncertainty, investors do not embrace these companies despite their highly attractive valuations.

While shorter term prospects of our companies can be impacted by slowing growth in China, rising US interest rates, and the trade war, it is our view that their longer term prospects remain intact and at current share prices represent very attractive investments.  In our almost 25 years in business, our experience has been that buying companies at the valuations seen in our current portfolio holdings can deliver good investment returns through time.

Overall, our current positioning does indeed reflect a cautious view on the outlook for markets. However, one can expect that we will put cash to work in current and new stock ideas as opportunities present themselves.

1 ‘Long’ represents the exposure to securities holdings and long stock/index derivatives as a % of NAV.
2 ‘Net’ represents the exposure of securities holdings and both long and short stock/index derivatives.