Rothschild: Oil Market Is More Finely Balanced Than Is Generally UnderstoodVW Staff
Rothschild TM New Court Fund report for the fourth quarter ended December 30, 2015.
Fund manager’s review
Overall, stock markets took a breather in 2015, having rallied over the past five years. Most of the recovery in equities in the fourth quarter came from developed markets; emerging markets struggled to keep up. Technology (+9.1%) led the recovery, while energy (0.2%) remained in the doldrums.
After a turbulent third quarter, markets recovered somewhat in the final three months of last year. The Rothschild TM New Court Fund was up 2.1%, taking full-year performance for 2015 to 0.2%.
Our return assets aided performance during the final quarter of 2015, while our diversifying assets gave back some of the gains made during the third quarter.
Once again, the divergence between the best and worst performers in the portfolio was marked. Ryanair was an obvious beneficiary of the slump in oil prices. A combination of record passenger numbers and falling input costs continued to boost revenues and operating margins. The share price rose 13.8% for the quarter and 58% for 2015.
The global brewer AB InBev was another strong performer. In early November it announced a £71 billion bid for its peer SAB Miller. Even when allowing for the sale of some of the acquired assets, the expanded AB InBev will be a global giant with commanding positions in both developed and emerging markets. Investors cheered the deal, sending AB InBev’s shares up 21.8% for the quarter.
By contrast, National Oilwell Varco (NOV), which supplies equipment to the oil industry, was caught up in the broader challenges in the energy sector. Its shares fell 9.9% over the quarter. At these lower share prices, we added to our position.
Pershing Square Holdings, which performed strongly at the beginning of 2015, has been disappointing recently, down 5.8% in Q4. Most of the weakness has been related to its holding in Valeant, a Canadian pharmaceuticals firm. Valeant has been in the spotlight, suffering from allegations that it has been overpricing drugs, and facing questions about its corporate structure – but still saw a recovery in its share price towards the end of the year.
While our diversifying assets lagged in the fourth quarter, by providing protection in difficult market conditions these assets continue to play an important role in the Rothschild TM New Court Fund.
After an unusually busy summer, there were fewer transactions towards the end of last year. In the fourth quarter, we added to our positions in Lloyds and NOV. Having conducted a detailed review of Lloyds earlier in 2015, we were looking for an opportunity to increase our position in what we consider to be a solid retail and commercial business. For us, the right price meant buying more stock at or below a price-to-book ratio of 1.33x. During November, Lloyds’ share price dipped to 72p, which was 1.33x our estimate of Lloyds’ tangible book value of 54p. We added to our shareholding at this price.
Turning to NOV, our assessment is that the oil market is more finely balanced than is generally understood. The two-thirds fall in the oil price over the past 18 months is already reducing both the number of oil rigs in operation and investment into new projects. We have also seen evidence that the lower oil price has boosted consumption, particularly in the key US market. The lower oil price may have sown the seeds for a recovery over the next year, yet the share prices of the better-quality companies, such as NOV, are discounting no such recovery. NOV’s dominant position in both the manufacture and maintenance of rig equipment will leave it well positioned to benefit from a recovery in oil prices.
Rothschild TM New Court Fund performance
Since inception, we have generated solid returns, with lower volatility and drawdowns than the global equity market. As at 31st December 2015, the net asset value per share was £12.93. The Rothschild TM New Court Fund size was £119.6 million.
The Rothschild TM New Court Fund holds a mix of return and diversifying assets from across global markets. The return assets are held to generate capital growth over the long term; the diversifying assets are held to protect capital and investment performance, particularly during difficult markets.
Fund allocations, contributors and detractors
The Rothschild TM New Court Fund is invested across global regions, assets classes and currencies. The fund manager follows a diversified investment approach and aims to preserve and grow the real value of the Fund over the longer term.
As long-term investors, we are more focused on the underlying value of our investments than fluctuations in market prices. The top five contributors and detractors are shown here simply to illustrate trends within the Fund during the quarter.