While we are long-term investors and generally do not comment on short-term market moves, we however think it is important to answer some of the questions received in the past few weeks regarding the recent increased market volatility.
Our objective is to generate strong long-term returns for our clients. We do this by carefully selecting 30-40 quality companies, which we can buy with a high discount to our estimate of the fair value of the company. In addition, for our market hedged strategy, our aim is to protect the portfolio by hedging 50-100% of the market risk.
The first Chinese devaluation on 11th
August and the following 2 months created large swings in the equity markets and all investors have felt the pain. Some more, some less...
ECP responded to the volatility in 2 different ways: As we saw stock prices coming down, we invested into quality companies at low prices. In addition, we increased our level of protection in the market hedged strategy. Buying quality companies at low prices will generate strong long-term results while increasing the level of protection, when needed, will help to preserve capital. Two of our main objectives.
The results, albeit measured on a short time frame, look promising. Compared to the overall market, our long-only strategy has shown a 2,4% excess return. The market hedged strategy has even shown a 6,6% excess return.
Source: ECP, Bloomberg. Past performance is no guarantee of future results.
These returns are driven by security selection and an efficient protection strategy.
As a value investor with a long-term investment horizon, short-term negative returns are (unfortunately) part of life. But in such market environments good investment opportunities are arising and we stand ready to take those opportunities. We are comforted that both our stock picking approach and our protection strategy have been of value in the recent 2 months. In time of writing we are still having a high level of protection in place for our market hedged strategy.