BDT Invest, which manages the Establishment Investment Trust, has apologised for its poor performance last year but expressed confidence that it will rebound in 2014.
Establishment, which focuses on Asian equities, suffered a 7.4% net asset value loss in 2013 while its share price fell by 10%. Through the same period the MSCI World index gained 20.4% and the MSCI Asia ex Japan index 1.1%.
‘It was a poor relative year for the area in which the company invests most of its assets and your managers did not have their most impressive year to put it mildly,’ BDT co-founder Henry Thornton wrote to investors. ‘We apologise to shareholders for our rather ham-fisted efforts since May.’
Between January and that month, when the Federal Reserve first mooted the tapering of quantitative easing, Establishment had returned 21.5% compared with a peer group average of 16.3%.
‘It has been one of those periods when what could go wrong did go wrong,’ Thornton (pictured) commented. In particular BDT highlighted that the ‘boring’ sectors it favours – such as property and ‘recession-proof consumer titans’ – had struggled in the sell-off since May.
In contrast Thornton noted that the ‘fad’ in Asian equities during that period had been for ‘Facebook lookalikes and cyclicals’, which it had avoided.
More broadly, Thornton accepted the outperformance of developed markets in 2013 was merited as US companies’ profit margins were at record highs of around 20% while those of their Asia ex Japan rivals were at record lows of 14%.
Thornton therefore took hope that a mean reversion would boost its fortunes. ‘We note that the vast majority of the returns in the Western markets in 2013 arose from a re-rating rather than earnings growth. Of course precisely the reverse was the case across emerging Asia. Therein lies the opportunity.’