Ahead with Caution
By Saftar Sarwar, Chief Investment Officer, Binary Capital
We always focus on positive return generation. At the same time aim for such returns to be consistently in the top quartile or even top decile against the peer group. Whilst we will not always achieve this, it is the focus. An ‘absolute return’ mindset.
In the first half of 2024 we have achieved that aim. The challenge is to continue to do this for the rest of the year and beyond. Being relentless in our pursuit of risk and return goals.
In this note I write a longer piece on market trends not just for the month but for the first half of 2024. It has been an unusual year. Investment markets have, in the main, been positive, driven by momentum in some key areas of markets, technology primarily. Even that sector of returns has been very narrow. A very selective group of stocks driving investment returns. Some examples, Nvidia is +160% this year, Microsoft is +20% this year, META is +45%.
Last year Nasdaq was +30% and so far in the first half of 2024 it is up around +20%. There are elements of euphoria in some areas. This is something we are very aware of, trying to understand better, and look to properly risk manage such enhanced volatility.
Economically governments and central banks have managed to navigate the competing inflation, interest rates and GDP growth scenarios well. Slow economic growth together with falling interest rates the most obvious outcome for the end of the year i.e the classic ‘soft landing scenario’. Inflation is still persistent but is expected to get to target very soon, perhaps even below target. It will be interesting to see how this all develops. Market emotions continues to be controlled by what will happen to inflation, interest rates and economic growth. These three are very closely linked.
Geopolitics will continue to play a part in market situations, especially the autumn US Presidential election. I expect a change in President in the US. This should, if nothing else, give higher conviction there to policy making. This in the longer-run should be positive for market trends. We will observe closely.
In 2024 we continue to perform exceptionally well, and it has been a similar trend of the 2023 return numbers. We are persistently focused on growth opportunities and overseas markets. The best companies in the world are from the US, Asia in specific themes. We focus there, allocate there. We aim to invest in the best outcomes and navigate away from scenarios that we feel will not deliver returns importantly for the long-term.
Creating returns is one thing, one thing only. A focus on only return generation is one dimensional, subject to enhanced volatility and therefore risk. The important thing to consider is how are these returns created, what are the risks undertaken, how well are the risks managed.
Over the years we have refined the investment strategy to further deliver exceptional risk and return management. The above should be seen in the context of our approach to portfolio management. We have key rules we stick closely to:
• We invest with high conviction. We want our investments to make a difference.
• In our risk-managed strategies we do not just invest in fixed income and equities, we have added another dimension here, ‘absolute returns’ investing. In long-term genuine absolute return strategies.
• Our investments are based on long-term investment themes.
Themes we look at: disruptive themes that have the potential for long-term, sometimes, exponential return generation. To reiterate, we think very long-term, not in singular year views.
Our investment returns this year have demonstrated that investment philosophy and pure thinking in practice. Across our risk ranges, for the first half of 2024, we have returned around +3% to +11% in the more adventurous portfolios, returns that have been market leading. We sit according to industry peer group survey (Morningstar) in the top 1% to 2% of all DFM peers. This follows on from similar group rankings in 2023. Consistency and resilience has been the key.
This is all looking backwards. It is history. Returns are created in the future. We think in forward looking terms and only care for that.
On our current thinking, markets can get unusually unreasonable so we note areas that could be possible and continue to evolve our analysis and risk management here.
We aim to increase further areas of absolute returns allocations where we can do so, with the aim of protecting capital as well as steady appreciation. Continuing the excellent risk management strategy. Continuing the opportunity to create and return asymmetrical opportunities.
We need to be mindful, we are long-term investors, patient investors. We do not want to get too involved in the details of market corrections (if they do materialise). In a broader context we have to manage through such volatility, hence the reason we undertake very limited portfolio changes, only do so if there are very high compelling thresholds in changing. This is part of our edge, there is so much data out there that everyone else has access to, they see the same things, read the same information, we need to see and read things differently to have that edge.
For us at Binary Capital this elite patient investing style is a huge competitive advantage and touches on everything we do. The best risk management is being focused, investing within conviction and if things change, changing with confidence and absolute clarity. This path may be lonely, may be subject to peer pressures to change, but it is the right one to navigate towards exceptional return generation.
We are determined to undertake the best-in-class elite portfolio and investment management strategies.
