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Astute Fund Overview - April 2023



Welcome to the Astute Fund Overview; today we take the opportunity to explain some of our fund activity and positioning in response to recent events.

The failure of several high-profile banks, including Credit Suisse and Silicon Valley Bank, created a significant amount of volatility, as fears of financial contagion and broader systemic risk rippled through financial markets. Consequently, bond prices moved higher as investors started to believe that a recession was coming, and rate cuts would be necessary. We won’t repeat ourselves by touching on what happened to these banks here, but please watch our previous market commentaries, or read our latest quarterly commentary for more information.

Earlier in the year, we completed a lot of research into the banking sector, and took advantage of the high yields on offer in the financial services sector (discussed in January’s Astute Fund Overview). Given our conviction on the quality of the banking sector, as the earlier mentioned banking issues caused dips in the share price of financial service companies, we were confident that valuations in the space were not reflective of the underlying fundamentals. We decided to trim profits on our short-term US government bonds that had rallied strongly, and put that profit to work, by purchasing a structured product linked to European Banks. This structured product provides an attractive risk-return profile, providing us with 8% unconditional coupon for 3 years, which essentially means an 8% return on the holding each year for 3 years, whether markets kick out say -30% or 30%.

The structured product has a 50% capital protection barrier, therefore, for this particular product to not make any money, we would need to be in the midst of a major European financial crisis in 3 years’ time – a level of risk that we are comfortable with.

Our funds are diversified, and so when we assess a holding (its risk-return characteristics, in what environment it will perform well etc), we don’t look at it in isolation; we’re happy that the structured product complements the other assets within the conservative and balanced funds.

Whilst there have been tweaks to our positioning given the recent mini bank crisis, our moves are more akin to adding some daffodils to the windowsill to reflect the spring season, rather than a full redecoration of the room (or in this case, fund). We take a long-term approach, and whilst we do like to share our thoughts and movements in the short-term, they are aimed primarily at managing risk and making your investment journey as smooth as possible.

We’ll be back next week with an Astute Market Overview, see you then.

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