7th January 2022
First off, a very Happy New Year to all our readers. We hope you had a relaxing and refreshing break and wish you all the best for 2022.
As Fund Managers we spend most of our time looking ahead, considering the best ways of generating future returns for our investors, although we do recognise that looking back at past drivers of performance can certainly help with this endeavour. We also tend to judge success or otherwise by assessing whether or not our Funds have met their stated objectives over the medium term, typically 3 to 5 years, and try not to get fixated on how the Funds have performed relative to a disparate peer group over short time periods.
With those disclaimers out of the way we’re now going to dive headlong into a review of how the Hawksmoor Funds performed in the arbitrary 12 month period that ended on the 31st December, also known as the year 2021. Pleasingly Vanbrugh, Distribution and Global Opportunities delivered positive returns of 10.8%, 14.0% and 18.2% respectively, leaving all 3 Funds in the top quartile of their particular IA Sectors. More importantly, performance in 2021 builds on a strong longer term track record and crucially helps contribute to our key aim of delivering positive investor outcomes.
This however, is not meant to be a trumpet blowing exercise but instead an opportunity to dig a little deeper into what drove that performance. Whilst not exhaustive, below follows a quick summary of the major positive and negative drivers of returns in 2021.
Positives
- Fixed Income: Or lack of! The Funds’ very low exposure to conventional bonds and low sensitivity to interest rates was a significant plus in a year in which rising inflation expectations and upward pressure on yields saw UK government bonds fall by over 5%. Investment grade credit was not immune either with the sterling corporate bond market off over 3%. Our focus on shorter duration bonds, floating rate securitised credit and private debt added value at a stock selection level.
- Private Equity: The ability to access high quality, fast growing companies at steep discounts to net asset value (NAV) has long felt like an anomaly to us, hence our heavy allocation to listed private equity trusts. 2021 was the year when the market began to wake up to our view with a nascent narrowing in discounts combining with strong underlying portfolio performance to deliver stellar returns. Highlights include NB Private Equity Partners (+65%) and Oakley Capital (+48%).
- Property: Drawn by attractive income profiles, sustainable growth potential and in some cases wide discounts, all 3 Hawksmoor Funds started 2021 with meaningful exposure to property – primarily via specialist managers operating in targeted sectors either enjoying strong supply-demand fundamentals (logistics, residential) or offering premium yields with bond like characteristics (supermarkets). The sector has been a material plus with 7 of our 8 REITs delivering returns in excess of 20%. Standouts include AEW UK REIT (+56%) which benefitted from strong asset management and discount narrowing and Urban Logistics REIT (+36%) which continues to profit from rapid growth in ecommerce and resulting demand for last mile delivery space.
- Other Real Assets: The focus here is on investments that exhibit low economic sensitivity and low correlation with financial markets, particularly equities. Underlying NAVs should make progress regardless of macro and market machinations. The steady returns we expect from these sorts of assets were in many cases exceeded with, for example, our two energy storage trusts delivering returns in excess of 20%. Elsewhere, IPOs in the digital infrastructure and onsite energy space have made flying starts to life. Although admittedly more cyclical, our shipping exposure deserves a special mention with Tufton Oceanic up a whopping 60% and Taylor Maritime up close to 40% since launch in May, both benefitting from tight shipping markets and high charter rates.
- Active Managers: We have always favoured high conviction, alpha managers with sensible investment processes who give themselves a good chance to outperform their particular benchmark. On the whole, 2021 was a good year for our active equity managers particularly in the UK where 8 out of 10 of our selections delivered returns ahead of the index. Turning to Asia, the managers at Ashoka India Opportunities delivered another fantastic year of returns (+41%) whilst the cheap, idiosyncratic portfolio put together by James Morton at CIM Dividend Income returned 26% versus the benchmark (MSCI Asia Pacific) return of -3%.
Negatives
- Gold & Gold Miners: With financial repression (interest rates kept below the rate of inflation) a real possibility and real yields deeply in negative territory the macro set up for gold bullion remains positive. Meanwhile precious metal miners have rarely enjoyed such high levels of profitability and cash generation but continue to trade on trough valuations. Despite this combination of positive macro and supportive valuations, 2021 was a difficult year for the precious metals complex with gold bullion off 3% (in GBP) and the miners down even more as represented by our core position in Jupiter Gold & Silver (-15%). With c.10% exposure to the sector in Vanbrugh and Global Opportunities and 5% in Distribution, this weakness was a clear negative for overall Fund returns.
- US Equity: The Funds have had low exposure to US equities for several years owing to the elevated valuation on which that market trades. Despite these high starting valuations, 2021 was another very strong year with US equities (+27%, MSCI USA), and particularly the mega-cap tech names, leading the way. Our lack of exposure here has hurt relative performance in the past, as has our relatively low exposure to equities in general, and was undoubtedly a significant drag again in 2021. We stick to our process however, recognising that whilst valuation isn’t a particularly good market timing tool, the price paid for an investment is a key determinant of future returns.
Despite the pandemic, growing risks around inflation and aggressive valuations, 2021 saw risk assets make serene progress with US equities in particular delivering returns well in excess of long term averages for the third year in a row. The fact that the Funds delivered decent performance despite having very little exposure to this area is pleasing and testament to the strong performance from our active managers and some of our more esoteric investments.
Moving forward we are excited by the prospects for the Hawksmoor Funds. Despite expensive mainstream assets (equities and bonds), opportunities remain for investors willing and able to look beyond the beaten path. In the final quarter of 2021 alone, 8 new holdings were introduced to Global Opportunities, 5 into Vanbrugh and 6 into Distribution, reflective of the opportunities that still exist for unconstrained investors and hinting at the wonderful competition for capital enjoyed by our Funds today. Unearthing alpha and investment gems capable of delivering positive real returns for our clients remains our unwavering focus. Here’s to 2022.
Ben Mackie – Fund Manager
This financial promotion is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. FPC14.
Source: FE Analytics.
Source: MSCI. Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.
