Sanditon Investment Trust says the second half of 2015 was a disappointing period for the fund with the net asset value closing at 99.3p which, after including the 0.45p maiden dividend paid to shareholders in December, amounted to a loss of 3.25% over the period. The share price closed the year at 107.4p, up 0.8% since 30 June 2015, leaving the shares trading at an expanded premium of 8.2% to net asset value. Inflation over the period remained becalmed with the RPIX up just 1.3% p.a. in December and returns from the UK equity market in the second half of 2015 fell by over 3.5% affected by sharp falls in commodity shares.
The managers say growth stocks have been outperforming value stocks – a trend that has persisted for some time but one that was unhelpful for their performance. Futures activity added 1.25% to NAV (positive contributions from both a short position in the middle of the period and a long position towards the end).
Over the period the long book lost 1.9% and the short book lost 0.55%, representing returns on capital employed of -3.6% and -1.1% respectively. The biggest losses came from being long commodities (-2.7%) where they were
demonstrably too early removing shorts in this space earlier in the year. Unsurprisingly, given the continued sharp falls in commodity prices, the oil & gas and the mining sectors were the worst two in the market with falls of 15%
and 40% respectively. They were particularly hit by BHP Billiton’s exposure to the Samarco mining disaster in Brazil which cost 1% and the continuing precipitous collapse in Anglo-American which cost 1.1%. They bought the shares
almost 80% off their peak and they have more than halved again as investors have taken fright of anything with financial leverage. It is incontrovertible that the more a share price falls, the higher the debt/equity ratio becomes and the more dilutive an equity raise will be. In Anglo’s case their debt maturities of over 6 years should have given them some breathing space but the market is in a fear phase and Anglo, like many others, have left it rather late
to raise equity, so the market is fearful it will have to sell good assets at the wrong stage of the cycle. They do not deny that trying to time the bottom of a commodity cycle is a perilous task and they have been too early so far,
although they say they did not get carried away with the size of their positions.
The short position to ‘growth’ stocks was also costly in the second half (-2.1% to NAV). The only positive came from Ocado which fell by 32% adding 1.1%. Shorts in Just Eat and Moneysupermarket, amongst others, were less successful. All their shorts are highly rated, have seen insider selling and have business models which seem to
them could be as easily disrupted as they have disrupted others. They are also generally asset light so when things do go wrong share price falls could be precipitate as they were in the aftermath of the TMT boom. It remains the
highest conviction view in the portfolio at present.
SIT : Disappointing period for Sanditon