Resilience Management
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.
As I have noted in the past many times, markets are volatile, and move in different directions all the time, times that are often unforeseen, random and often difficult to understand and so explain. July was once such month. Short-term news and noise played on markets, specifically around the key growth sector of technology. After robust earnings across many previous quarters, recent earnings in some corporate areas were disappointing, this reflected in some downward pressure on share prices. This is to be expected.
This was one month. We will see if a long-term trend develops or that volatility has risen during the summer months. Often this level of volatility is expected, markets do not move in a straight line, are not consistent or persistent, and change is inevitable.
To select and invest in the very best companies from a broad universe list, is hard, requires patient and resilience and comes with volatility. If this is undertaken correctly, the long-term opportunity is there, there are challenges to get to that end goal or to maintain discipline with others may be losing it.
Most investors neglect the power of time and the absolute advantage it gives upon those with a sufficiently long-time horizon. Many investors behave as if they are attempting to generate the highest possible return in the shortest possible time. Instead of compounding decent returns, investors typically become destined to compound a succession of poor decisions with difficult then long-term consequences. Investors typically worry about and act on short-term risks and opportunities – it is a great strategy for survival but not a good one for investing. Rarely do investors think more longer-term, more radically, the potential to navigate the short-term for longer-term returns. If have the capacity to think and act long-term, this is a great ‘investment edge’
This is true of US stocks as well as other overseas markets. [Long-Term Shareholder Returns: Evidence From 64,000 Global Stocks. Hendrik Bessembinder et al]
This is something we concentrate on at Binary Capital, the long-term, the key sectors and themes that will deliver such returns. We are very focused around this, the short-term is a means to an end, can be a distraction, for this long-term goal.
There is power in passive or indexation exposure or coverage, we fully understand this. Alongside indexation we also seek the true, authentic active managers, managers who can consistently gain exposure to the extreme right hand side (tail) of the graph and pick those investments that will be true positive outliners and provide significant upside to returns. This is very hard to do in practice, we spend a lot of time thinking around this, acting where necessary.
So far, our investment strategies have delivered consistency in terms of returns, for the first six months of 2024 our strategies were effectively ranked (according to Morningstar) the top 1% of all DFM strategies in the large UK DFM universe. One such strategy sits at 3/1,237 (1H 2024 data)
This continues the good return and risk work of previous years. In actual return numbers, on the more adventurous portfolios we returned +12% in the first half of 2024. Very strong and credible return numbers.
Whilst the future is uncertain, all around us innovation, disruption and changes to existing business models continues to occur. Life and business moves very fast. The scale of some innovation is exceptional and exponential. It would be very difficult to go against such innovation in technology, healthcare, artificial intelligence and biotechnology. The opportunities to create value in these areas will always continue to exist, it is all about finding the right strategies, frameworks to fit into this, maintaining that level of excellence.
We keep working hard, working with focus, working to achieve.
