Report May 2020
During the month of May the Columbus Fund continued to recover with a + 3.67% rise, ahead of the STOXX 600 and the IBEX 35 which increased by +3.04% and +2.52%, and lower than the MSCI Mid Cap (+4.76%). This performance helped to reduce the loss over the last 12 months to just -0.8%. Year to date, the fall is -13.56%, which although material, is lower than for the European indices, which range from -15.06% for the MSCI Mid Cap to -25.69% for the IBEX. Since inception in June 2008, Columbus has returned +89%, outperforming the European equity indices.
During May the European Commission released their detailed proposal for the future European Reconstruction Fund. Of the total €750bn, two thirds is expected to in the form of grants with the remaining third provided through loans. Although the agreement is yet to be approved by the member states, the market is hopeful that the debate beginning on the 18th of June will prove fruitful. While some flexibility will be required, having both Germany and France already aligned is a very positive first step.
Central Banks, for their part, have continued their unconditional support for the economy by increasing and lengthening liquidity injections that are likely to continue well into 2021. Central bank balance sheets continue to rise to historically high levels, with the response to Covid being much swifter and more aggressive than was initially seen during the financial crisis of 2008. Our baseline scenario, given both the fiscal and monetary response, remains a rapid and deep recession, followed by an equally rapid recovery. We believe that when the pandemic recedes, the market will begin to focus on the expected results of 2021.
As for the Columbus portfolio, we have spent many months with no positions across the more cyclical sectors (oil, raw materials, autos) and very small positions in financials. We continue to be positioned in companies where we see a better risk/return relationship, notably in technology, industrials and business services. We have taken advantage of the fall to increase a number of our existing holdings, as well as and to take positions in securities in the infrastructure sector (Fraport and Getlink) that have fallen to very attractive levels. This was partially funded through the sale of Biomerieux, the French clinical analysis company, following the recent 40% rise in the share price. We believe that the valuation has become unjustified, despite the fact that company has been a beneficiary of the current crisis. By contrast we have maintained our position in Ingenico despite the recovery of its share price this year (+ 28%). The take-over offer from Wordline is in progress and we believe there are strong prospects for the combined group as the European leader in payment services.
The stock market’s recovery from the lows has not been uniform and has focused on higher quality companies with strong balance sheets. Indeed, many of these companies have recovered to, or even above, levels seen before the pandemic struck. From the lowest point of the crisis on March 18 Columbus has risen by 36.24%, and we believe that the initial phase of the “V” bounce is coming to an end. In the coming months we are likely to see a period of increased volatility within and between sectors which we expect to provide opportunities for those of us prepared to take a slightly longer-term view.
Since June 14, 2018 both domestic and foreign investors have been able to access the Columbus strategy via the master-feeder structure between the Columbus 75 Sicav in Spain (feeder) and the Luxembourg registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund (master). The Luxembourg vehicle offers both institutional and retail share classes.