BACIT Limited has announced interim results for the six months ended 30 September 2015. The return on net assets for the period was -3.28% which compares to -7.19% for the FTSE All-Share Index and -6.78% for the HFRI Fund of Funds Strategic Index.
Looking at the portfolio:
Equity Funds (24.9% at 30 September 2015 vs. 22.3% at 31 March 2015) – they added Woodford Patient Capital Trust at that company’s IPO in April, to gain exposure to unlisted growth companies. Moderating the Company’s long only equity exposure during the last two years paid off during the period, given the setbacks in global equity markets. The managers in this group performed in line with or better than their respective indices, some making good money in Japan (11.6% of the portfolio), where the stock market and the economy are undergoing structural changes which should benefit our holdings over the medium term. They say the Russian holdings (2.6% of the portfolio) remain inexpensive on historic and peer metrics.
Equity Hedge Funds (32.4% vs. 32.0%) – the managers in this group expose the Company to Europe, sub-Saharan Africa and the broader Emerging Markets, as well as to gold mining stocks, and they protected capital during the period. As mentioned above, they added a small Emerging Markets holding in a fund run by the same team who run the Africa fund, Tower.
Commodity Funds (4.9% vs. 4.5%) – these managers expose the Company to globally traded agricultural commodities; European and North American power, natural gas, coal and oil; and Australasian power. The asset prices in this subset are volatile and these funds’ risk management is of critical importance. The managers’ performances have historically been uncorrelated with one another, and this has continued since the Company’s investment, which has muted the volatility of the aggregate returns of this group. Against a backdrop in which the CRB Commodities index declined by 8.5% during the period, both funds generated solid positive returns.
Fixed Income and Credit Funds (16.4% vs. 16.6%) – the seven funds in this group faced unhelpful listed markets, though the unlisted exposures continued to generate solid returns. An unintended consequence of post-Crisis regulation has been to reduce the amount of capital the major banks deploy in dealing and market making in the fixed income markets. Prices can thus move sharply on little volume. As the cycle matures those managers with a long/short mandate are increasing their short positions, with at least one of the Company’s managers now net short. When the European crisis came to the fore once again, during the late summer, European sovereign bonds dropped, taking mortgage backed bonds with them. TIPS endured the headwind of falling inflation expectations in the US, however the impact of reduced energy costs will fall out of the year on year numbers in the first quarter of 2016.
Global Macro Funds (12.2% vs. 16.8%) – this group includes three funds which pursue global macro opportunities, and whose trademarks include profiting from bursting price bubbles. Themes they are expressing include the move away from carbon fuels in Asia and the US, the Emerging Markets Balance of Payments crisis and the US economy’s inability to achieve escape velocity. Two made a small profit and one made a loss during the period.
Other Strategies (4.6% vs. 3.0%) (Total undrawn commitments: 7.8% of NAV) – this group includes commitments to three longer-life opportunities. Amongst these is BACIT’s commitment to the CRT Pioneer Fund, the vehicle through which the Company is investing in early drug discovery and medtech candidates, and listed in the table as “BACIT Discovery”. Although just 16% drawn, CRT Pioneer has now made seven investments, and is shortly to make an eighth. The private equity and infrastructure investments are now 62% and 44% invested respectively, and generated meaningful returns during the period.
BACT : BACIT backed Woodford fund