Warnings over future investment markets and an end to 10-year bull run

A Liverpool-based investment vehicle has failed to provide a positive return, amid warnings that the 10-year bull-run could be about to end.

Seneca Global Income & Growth Trust generated a net asset value (NAV) total return per share of -1.6% for the six months to 31 October 2019.

This was below the CPI +6% annualised benchmark, which, over the six months, provided a return of +3.7%.

Managers said that from time to time, underperformance over short periods will occur and is an inevitable consequence of the volatility of underlying financial markets as well as SIGT’s high conviction and longer term investment approach.

“The board believes returns are better judged over longer periods; for example, over the five years to 31 October 2019, SIGT’s NAV per share total return was +47.9% and the benchmark return was +30.3%.”

The SIGT statement added: “When looked at overall, the six months appear unremarkable.

“Sterling ended the period about where it began against the dollar and the euro.

“The FTSE All-Share Index total return was just positive and the US stock market rose a little.

“These beginning to end period comparisons hide considerable intra-period movements, especially in relation to the UK as possible Brexit outcomes influenced markets in competing directions.

“SIGT’s UK equity exposure is predominately focused on mid-cap companies whose performance is more closely tied to the UK’s economic fortunes than that of large-cap companies.

“By and large, these mid-cap companies performed well in the period, especially when fears of a no-deal Brexit receded.

“SIGT’s lack of exposure to US equities and to sovereign debt both detracted from performance.

“These positions have been so for some time and are very much valuation led. Overall, the portfolio performed reasonably in a particularly volatile period.”

Chairman Richard Ramsay said: “During the period, the manager continued the gradual process of the last two years or so of reducing the company’s equity exposure.

“The amount of reduction was modest and, indeed, was briefly paused during the period.

“While some modest further reduction is likely, the manager considers the reductions near their end.

“There are signs that valuations of some equities now reflect much of the risk and prevailing uncertainty. The UK has, of course, been dominated by Brexit uncertainty and with an election now looming it is difficult – and dangerous – to predict the outcome of either.

“Elsewhere, US-China trade discussions rumble on, and future US monetary policy remains uncertain.

“The board is comforted that the manager’s well-established, disciplined and distinctive investment policy and process continues in a consistent manner.

“The diverse range of assets comprising the company’s portfolio should provide reasonable returns over time, as well as real risk reduction, which seems particularly relevant in the current environment.”

However, SIGT warned: “We have enjoyed the fruits of a 10-year bull run in investment markets, but the signs are there that things will change.

“One of the preferred recession indicators used by the Federal Reserve is the 10 year/three-month yield curve which was inverted for the majority of the third calendar quarter.

“PMIs are falling, tensions remain high between the US and China and in the UK we will still have many more twists and turns before there is any resolution to Brexit.

“We are keen to continue to reduce risk and increase diversification in the portfolio. Our flexibility to allocate across different asset classes including the broad specialist assets market, combined with our smaller size, should allow us to navigate both the risks and opportunities that present themselves.”