Latitude Horizon Fund


THE OBJECTIVE OF THE LATITUDE HORIZON FUND IS TO DELIVER CAPITAL APPRECIATION OVER THE LONG TERM BY HOLDING A CONCENTRATED PORTFOLIO OF STOCKS, WHILST LOWERING THE EQUITY RISK THROUGH A SELECTION OF NON-EQUITY INVESTMENTS. 

September 2018 Commentary

Currency trading is extremely difficult and, after fees and spreads, it offers an expected return of less than nothing. Since the crisis, when global interest rates fell towards zero, FX markets have had no fundamental framework for valuation. The recent sharp spins of the wheel of currency fortunes resembles a compass sitting at magnetic north, offering no clarity until after we have moved towards a new destination, by which time it is of little use.

The question is: should investors engage in this zero sum activity and, if so, how. We believe it’s essential to consider currency risks within any global portfolio and we use currency forward contracts to hedge our portfolio back to base in two scenarios.

First, if we have a strong view that a currency to which we are exposed is likely to fall, we will hedge out the exposure. Second, if a sharp fall (say 10% or more) in a non-base currency is reasonably possible (perhaps 20/30% or more) and such a move would cost the portfolio more than 100bps, then we will hedge around the possible event.

To think about this, consider the alternative. Roughly c.80% of our equity allocation is overseas. Given our 50% allocation this implies a 40% non-base exposure. Currently our non-equity investments are all denominated in US Dollars, a further 35% non-base. At 75%, a 10% appreciation of sterling to $1.45 would cost the portfolio c.7.5% ceteris paribus. Despite being uncertain as to the likely outcome of the Brexit negotiations, a move of this magnitude is very possible in a positive deal scenario, and still possible in a weaker ‘backstop’ scenario as the clouds of uncertainty lift.

As a result, on 13th September we hedged 95% of our portfolio to protect against this scenario.

Whatever happens to sterling in the coming months will not affect our performance directly, only through the businesses which we own and the earnings streams within them. While we sacrifice any upside from a collapse in sterling, we reduce our risk substantially in the event that it rallies, allowing the individual components of the portfolio to continue to perform relatively independently of one another, instead of implicitly taking a large singular position on the outcome of a deeply uncertain macro event.

Fact Sheet
Key info
Key Info
Fund Launch Date1st November 2016
Legal StructureIrish Domiciled UCITS V Fund - ICAV
RegulatorCentral Bank of Ireland
Base CurrencySterling
Regional ExposureGlobal, primarily developed markets
BenchmarkThe fund is not benchmarked
Share Classes£ - A/I IE00BDC7CZ89 / IE00BD37NY30
$ - A/I IE00BD37NZ47 / IE00BDC7JY67
€ - A/I IE00BDC7CX65 / IE00BDC7CW58
Management Fee1% per annum
Performance Fee0%
DealingDaily
AdministratorSEI Investments – Global Fund Services
CustodianSEI Investments Trustee and Custodial Services (Ireland)
Auditors PriceWaterhouseCoopers
Legal CouncilMatheson
Firm ComplianceOptima Partners
Contact DetailsAlex Robins - alex.robins@latitudeim.com 12-13 St James’s Place, London, SW1A 1NP +44 (0) 207 087 9275
Documents
Fund Reports