Page 49 - 2022 July Report

Semper Vic ($7.9m)
Silchester ($15.4m)
Overlook ($5.9m)
Junto ($4.6m)
OrbiMed ($2.2m)
Bonds ($25.0m)
Coronation ($3.8m)
Cat Rock ($1.9m)
Resilience
Investment Committee minutes (draft) (4)
Winners
Return
-10.9%
-4.7%
-9.2%
-0.2%
11.0%
-10.0%
Benchmark -12.5%
-11.3%
-12.8%
-8.0%
-38.5%
-12.0%
Losers
Return
-28.1%
-46.5%
Benchmark -11.8%
-8.0%
Table 3 Winners/Losers
GQG Partners ($12.6m)
4.1%
-12.8%
Champlain Small Company ($5.8m)
-21.3%
-16.5%
Prime remains confident that over time the Champlain Small Company US equity fund (which lacks energy exposure) will generate above average returns. JSF has been liquidating its high-risk hedge fund Cat Rock investment as allowed with an additional 50% scheduled for redemption for June 30, 2022 (one third was redeemed in June 2021). Once this sale is complete the four core low risk hedge funds – Davidson, Farallon, Diameter and Junto – will make up to close to 95% of JSF holdings in this space. Prime would like to top up the Farallon position within the next year. The turnaround in OrbiMed’s performance was driven by a big win on a Chinese biotech investment. Future OrbiMed returns are likely to be very volatile however the Committee likes the idea of maintaining a modest 1% to 2% exposure in the biotech space and OrbiMed appears to be a good vehicle subject to further Prime research.
With regard to Coronation Global Emerging Market Fund Prime is recommending full redemption. The Committee agrees with this recommendation. Prime met with Coronation fund managers on May 31, 2022 following its massive 20.6% underperformance over the last 12 months (i.e. -40.4% versus the emerging market benchmark of -19.8%). Prime questioned Coronation’s risk management skills over this period. A more than double weighting at 10% in Russian equities at the start of the Ukraine war despite ominouscloudswaswrittendowntozero. LargeholdingsofChineseequitieshurtbyCOVIDlockdowns and Chinese government actions against Chinese technology companies also adversely impacted performance. The Russian investments are now held in a side pocket and if there are recoveries JSF will benefit even after the redemption of its Coronation investment.
Prime recommends the proceeds from redemption of Coronation ($3.8 mill at May 31/22) be temporarily re-invested in the Vanguard Emerging Markets Stock Index Fund with eventual deployment into the Westwood Global Emerging Markets Fund when timing is better. The Committee agreed with this recommendation. BackgroundinformationonemergingmarketsfundsofferedbyWestwood,Vanguard and Blackrock was provided (the latter two passive Index Funds). Boston based Westwood is a smaller ($8.5bill)activelymanagedfundwitharelativelyconcentratedportfolio(25to30names). Westwoodhas a good track record. At present Westwood has a relatively big bet on Latin America.
4. Investment Return Outlook – To state the obvious the outlook for near term investment returns is extremely unclear. As stated over the last several quarters the Committee is nervous with a lot of volatility expected. Prime indicated the possibility of a further 10% decline in equity markets but doubted if the decline would reach 25%.
Central banks around the world are belatedly starting to deal with inflation rates that are well above expectations. Bringing down excess demand in the economy and inflation will require much higher interest
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