Brownian Motion
By Saftar Sarwar, Chief Investment Officer, Binary Capital
In 2024 we continue the consistent good work we have been doing for many years. We 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.
Challenging markets are here, it is how we can cope with and manage such volatility that will stand us apart from the peers.
In April markets were choppy as sentiment moved from greed to fear. That index ticked up significantly in April, fear being the dominant determinant in April. Why was this? there was the digestion of news around inflation being higher for longer, a pause in interest rate expectations with even forecasts of US interest rates rising to ward off the threat of inflation up-ticking. Corporate valuations in the US are optimistic at times, and whilst earnings data in April have generally been positive the stockmarket has punished any sense of an earnings slowdown. Global economic growth remains steady – with the US and China dominant there. So far, the US economy has done remarkably well to navigate interest rates, inflation without any significant economic challenge. It remains to be seen if that occurs later this year.
In most of our thinking we focus on a crucial skill of investing, resilience. Being resilient when others are not, being resilient when emotional levels run high, being resilient when there are market stress levels. Overall having a resilient mindset. This seems a steady state that many investors should adopt, in reality it is very hard to do. If that focus on being resilient can be incorporated well in an investment philosophy and strategy, then it is a massive competitive advantage against the peer group and against the markets.
By being focused, long-term investors and avoiding day to day market noise genuinely does set us apart from our competitors and is a deep deep advantage when it comes to consistency of investment performance.
Overall, In Q1 many of our investment strategies were in the top decile of the peer group. According to Morningstar we had one of the best performing strategies in Q1 – with a return of +8%. As noted, we do not expect markets to move in smooth directions, there is risk, there is volatility. That is one of the reasons we have an allocation of alternatives or absolute returns in many of our strategies: to work in such pressure scenarios, see it as a hedge to our ‘long equity positions’.
From a forward-looking perspective being more cautious when others are too exuberant is not a bad thing. We are closely looking at our alternatives allocation, and may add in the coming months. We are trying to understand if such change (in investment markets) is transitory or something more permanent. It is all about selecting from the 1,000s of funds out there to a select few that will work in isolation, as well as in combination together. Being super fund selective, as investment selection is so important in decision making, and then investment performance.
Whilst resilience is needed now, so it the ability to be flexible to a changing environment and seek returns were returns can be delivered. Nothing is constant, so be adaptable to change.
As a priority optimism of thinking is ever present in our investment mindset. We just need to navigate the difficulties to get there and focus on that, and not get distracted at different Brownian motion trends (randomness of markets, people and psychological traits) but at the same time we are aware of the world we live in, the reality of trends, so being holistically pragmatic is always important.
The opportunities to demonstrate consistency of good performance is always available to us. It is for us to go out and achieve it.
