The Progressive Global Fund (PGF) returned 0.9% net of all fees for the month of July. This compared to the ASX which was up around 1% for the same period.
This month both our long and short positions contributed to performance. Contribution was broad-based with no significant contributors nor detractors.
The portfolio finished the month with net exposure of 56% as we continued to trim our exposures with the aim to reload when better setups present themselves.
The Fund’s Performance & Market Review
We feel like this period ahead is a difficult one to be a professional money manager. This is due to the fact equity markets continue to rise in what seems to be a monumental sized bubble across many asset classes. As more and more retail investors keep getting sucked into the vortex of ‘easy’ money from the equity markets, the professionals are almost forced to chase returns alongside the pundits, or else risk underperformance. It’s certainly a rare time in markets where “memes” and retail stock forums can move markets and the sheer euphoria amongst most punters is concerning. It’s these times we try to focus even more so on risk/reward and be extremely selective with the investments we are making.
With more and more signs of euphoria, we logically wonder who the next buyers of these overvalued equities will be? So, while these “meme” stocks keep attracting more and more investors at higher and higher prices, we find it difficult to allocate capital with an adequate margin of safety. Alas, this also means the stocks we are buying are probably not the ones these hot money investors are chasing either. While it can lag in the short term – this typically proves to be a great strategy long term (as you tend to avoid the downside blow-ups), but not a great one if you want to get rich quick.
Unfortunately, this bubble is not a new phenomenon, and it certainly won’t be different this time. We feel that the bubble could be close to popping and should the inflationary pressures we keep talking in these notes continue. It will force central banks into lifting interest rates higher and ultimately should result in asset prices falling. But this seems to be something not too many people care about at this stage of euphoria. Especially while the central bank is accommodative to the further inflation of the asset bubble via low rates. But the signs are certainly appearing that the bubble is perhaps nearing the end of its, what seems like endless expansion.
While we continue to be cautious, there is the odd opportunity for what we think are asymmetric in our investors favour. We typically look for these in a top-down fashion, however it seems to be a more bottom-up approach that has been delivering these to us of late. Maybe another sign of the time we are at in the cycle?
So, while we are overall cautious, the market doesn’t seem to want to fall. With more and more printing and central bank stimulus, it seems the market probably keeps going up (at least for the next couple months?). So, the dilemma is how much to participate in these favourable conditions – make hay while the sun is shining? But the answer is: as best we can with as little risk as we can. Which is certainly difficult when as professionals we tend to look at risk first, reward second.
Slow and steady will win the race and we like to be a tortoise!
As always if you would like to learn more about investing in our fund please contact us through our website.