Manager's Monthly Report

The Trust produced a Net Asset Value total return of -1.3% during the month and a price total return of -0.3%, compared to a return of -2.8% for the FTSE All-Share Index (TR).

August markets were unsettled this year by a sharp fall in the Turkish lira. The vulnerability of this currency has long been flagged by strategists and economists who have cited the country’s heady levels of debt (denominated disproportionately in a strengthening US dollar) combined with escalating political instability as a worrisome mix. Although the lira has been steadily weakening against the dollar for some time it took the detention of a US pastor to precipitate an acute phase of the crisis.

The weakness in the Turkish currency, and even the wider impact on emerging market exchange rates and debt, have had few direct ramifications for your portfolio. However, this episode is illustrative of the way in which seemingly unsustainable imbalances and mispricings can persist, unchallenged, for extended periods, often only finally being reflected in asset prices following an unforecastable trigger event. As long-term investors it is our job to identify the imbalance and mitigate the associated risk, rather than try to precisely predict the timing of the trigger.

In mid-August the S&P 500 set a new record for its longest bull market, surpassing the duration of the 1990s run that ended in the mania of the Dotcom bubble. Today’s cycle has not been without its fair share of imbalances and capital miss-allocation. It is for this reason we have been reducing risk within the portfolio, decreasing the Trust’s exposure to less liquid and more richly valued holdings such as Burberry, IG Group and Jardine Lloyd Thomson, and adding to quality defensive franchises such as RELX and Reckitt Benckiser. It has been encouraging to see these changes contribute to the Trust’s resilience in recent weeks.


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