Seeking the best – March 2023 update.

On a strategic level we are performing well. Economic uncertainty continues so we remain pragmatic and realists to short-term and long-term economic changes. We hope to be on the right side but are conscious we will not always be so.  We are humble to the markets and resilient around them. Humble and resilient.  Our Active Adventurous strategy returned +5.2% during the quarter.

2023 has started well, very well. We at Binary Capital are pleased around this. We are one of the top performing Discretionary Fund Managers (DFM) in 2023 across all peers, indeed probably the top performing.

Performance in 2023 has come from a mixture of sources. I will spend a bit of time in this note going through some key performance areas and our thinking in this important area. It is important to understand well our overall investment philosophy and strategy as that comes together to how we deliver such performance in a consistent manner. This strategy is often very different from others, we are not closet-indexation players and never will be, we do not pay too much attention to the benchmark itself, the benchmark is a guide only.

Firstly, we are long-term investors and so do not like to and typically make short-term changes, when I say short-term, it is not about quarterly information but looking years or so, we place investments for a reason and wish to see them generate returns over a long investment cycle, often thinking of investments as a permanent addition to the portfolio. Looking at the capital as permanency but having the option to change if our views change. We think always institutional like, absolute return like. How do the best institutions in the world invest and why? how can we get consistency in performance and investment strategy and always deliver. In the context of institutional like we do not prefer the closed fixed equities and fixed income asset allocation model per se but see asset allocation in much broader and realistic terms.

We have a strong absolute return pillar to our asset allocation and overall investment framework. It is foundational to our work. When I mean absolute returns, I mean strategies that can genuinely protect capital in more volatile and difficult markets and then create steady returns as markets move up. Strategies that incorporate the best of all asset classes: equities, fixed income, commodities, real estate, and different hedging solutions to minimise risk of losses and looking at capital preservation. There are over a 100 ‘absolute return’ funds available to investors in the UK of different styles, strategies, and managers. From such a large universe we like four in themselves as well as collectively as a ‘mini portfolio’ blend in well to deliver what we seek and add that pillar to our overall strategy that has helped us navigate well 2023 so far. Not many peers have such flexibility, innovation, and insights, we do.

-To be clear the first three months of 2023 has been a challenge across many investment areas, there have been three specific highlights that came up:

-January started off with a strong rally towards growth equities, with the NASDAQ index up around +10% in the month.

-In February markets were choppy, as UK and US inflation came in at a persistent level, investment markets sold off as uncertainty around such inflation and rising interest rates came into investors minds more prominently.

March was a very interesting month. Whilst not 2008 some of the banking system came under pressure due to the collapse of Signature Bank and Silicon Valley Bank. Both banks took on excessive risks that became their undoing. Then followed an aggressive run on Credit Suisse, that financial institution was forced to be taken over by UBS at a nominal price. A very volatile month for markets with many variables at play.

Three key events which together with other news and noise meant markets have maintained an elevated level of volatility and uncertainty so far this year. Around all this uncertainty the performance across all our strategies especially the more active strategies, performed particularly well. Positive results in uncertain times.

We are forward looking, typically looking years in advance, as we believe investment returns do not happen over a short time frame but takes months and years to come together to the initial and then moving thesis. Longer-term investing is a much better strategy for capture returns and avoiding try to time market movements that can be typically irrational and random for often extended periods of time, randomness is always around. If you have the resilience and advantage of thinking and acting long-term then it pays to implement such thinking into actual portfolio management.

Look at the signal, not the noise. Consensus thinking typically does not concern us, market consensus is more often wrong, certainly as one focuses on the long term, the consensus can be significantly wrong. We are usually anti-consensus. We have our strategic views and tend to stick with them irrespective of the noise surrounding such allocations. For example, we are positive on China for the long-term. So current negative noise around China around price and sentiment does not concern us greatly, we want to see through all this randomness for the longer-term macro and micro picture and return focus. After the covid period, China is growing, growing well and many of the corporate governance and competition issues raised by the state over the past few years is dissipating. From a valuation perspective China is not expensive and growth is robust for the next few years, with GDP growth in the coming years expected to be in the region of 4% – 5% p.a. – robust numbers after periods of economic negativity. We have direct as well as indirect investment positions in China.

In numerical performance terms our portfolios ranged from +2.3% to +5.2% over the quarter, a strong level of performance. Strong numbers also on a relative basis, but as I note we do not pay too much attention to the benchmark.

Importantly, in February we had the distinction of being one of the top-performing managed portfolio solutions year to date, in the Morningstar 1,026 solutions database, 3/1,026. This continued on the good work we did in the second half of 2022 and as I said March was an equally good month. There is no reason why Q1 2023 will not be an exceptional period for us in performance terms relative to our peers as well as in overall return terms. To compete so much better against much larger peers is an achievement in itself.

Looking forward as we develop further performance, we will aim to stick to the philosophy that we adhere to. Markets will continue to be volatile, and we need to be mindful of that, we are fully aware that some months we will not perform as well, the long journey matters, however. It is the focus.

Alongside our core investment strategies, the other range of solutions have performed similarly well, all are underpinned by our overall investment philosophy.

If you believe in your ideas, and they are tested to the highest extremes, and do well, you will also do well.

Saftar Sarwar

Chief Investment Officer

Binary Capital Investment Management