I say this at the end of every January and July. The most exciting months in an Australian fund manager’s life are February and August. Reporting season is when we get to see whether our prognostications were correct and find out whether the market will come to agree with our assessment that the stocks we own are undervalued.
The broader market continued its recent rise (third consecutive blogpost where our benchmark hit an all-time high), Unfortunately our portfolio has done next to nothing in the first couple of weeks of 2017. The swell of economic positivity of late has me given to think of the importance of psychology in economics. The tidal wave of global positivity in the second half of 2016 has continued into 2017 (so far).
I am currently traveling in New Zealand, I return in the first week of January. Please review the December Investor Letter to get a brief annual review of how calendar 2016 was for EGP Investors.
The last few months have been unusually active ones for EGP. FY2017 will likely see our highest ever level of portfolio turnover. We are already very near 10% and not yet 6 months through the year. Based on our average holding period of nearly 10 years, we’ve been as busy in the first half of the financial year as we are in the average year.
We have alluded to a major new position for the fund at each of the last two blogs. I have tried to keep it brief and simple for those of you whose attitude to what I do with your capital is best described as “Show Me the Money”.
Something concerning has happened since the last Blog.
We will examine ‘market-timing’ in this edition. If you read nothing else, the second to last paragraph is the most important of the blog.
Before I delve into this editions fascinating take on my view of the idiosyncrasies of measuring risk, I first wanted to talk about risks specific to your investment in EGP.
The Principal-Agent Problem is an issue in a number of industries. It is an enormous issue for the fund management industry.
The portfolio metrics based on 30 June 2016 balance date and 15 September 2016 prices:
August was a good month for the fund. Particularly in light of a retreating market.
The recent positive bias for the market has mostly continued into August.
There is much in Kipling’s poem ‘If’ that can be applied to investing:
In Leviathan, Thomas Hobbes set out much of the fundament of what the construction of our modern social and political lives has been based.
FY2016 was an excellent year for the fund, at least in comparison to a fairly weak performance from the indices. FY2013 and FY2014 were very strong ones for the Australian market, with a 44.15% 2-year gain. FY2015 and FY2016 have been disappointing, with only a 7.93% 2-year gain. A little extra tailwind would certainly be helpful in generating a larger absolute performance.
