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.
Post the financial crisis currency markets lost, and have only just regained, their compass. The ramifications of this development continue to be felt in every asset class, and dominate macroeconomic analysis. Like it or not, every portfolio manager has to form a view on the US Dollar.
The most effective tool for forecasting a currency’s value is ‘Interest Rate Parity’; comparing two countries interest rates and the effect that this differential has on forward rates. With most countries exhibiting zero interest rates, this process was replaced with an approximation, at best, that comparing economic performance was a reasonable proxy for future changes in exchange rates. The result was many years of exchange rate volatility.
This partially normalised in 2014 when the Federal Reserve began discussions of tapering and, now, tightening monetary policy. The US Dollar promptly rose 20% (trade weighted) and hovered around that level until Donald Trump’s election, when it rose another 5% on “reflation” expectations. At this point, in January this year, the interest rate differential had rarely been as high between the US and the rest of the developed world, resulting in a large risk for any portfolio exposed to the US Dollar, US rates, or “reflation”. Central banks globally faced a choice of two policy options and we saw an opportunity to hedge the portfolio profitability for either eventuality.
For US interest rates to rise as expected, a coordinated global recovery would need to be in place, implying a strong likelihood of monetary tightening in the rest of the world, which would lower the interest rate differential in a bullish way. If instead that coordinated economic recovery was threatened, it was likely that rate rises in the US would come through more slowly, if at all, thus lowering the interest rate differential in a bearish way. In either scenario it felt likely that the US Dollar had peaked and it was at this point that we initiated our ‘Emerging Market’ position.
The position consists of 20% EM Currencies, 4% EM Bonds and 6% Gold. In aggregate the position has a yield of 5.5% and has returned 6% since we initiated it in January. All of our non-equity positions must diversify or hedge a risk in the equity portfolio, and must have a positive, asymmetric return profile. The key question is does this position still exhibit these characteristics? As markets continue to adjust to the rediscovery of their valuation compass we expect more volatility. Reducing our exposure to this volatility is attractive, especially if, as we continue to believe, we will be paid a reasonable return (5.5% yield and c.3-5% expected appreciation) to do so.
|Fund Launch Date||1st November 2016|
|Legal Structure||Irish Domiciled UCITS V Fund - ICAV|
|Regulator||Central Bank of Ireland|
|Regional Exposure||Global, primarily developed markets|
|Benchmark||The fund is not benchmarked|
£ - A/I IE00BDC7CZ89 / IE00BD37NY30
$ - A/I IE00BD37NZ47 / IE00BDC7JY67
€ - A/I IE00BDC7CX65 / IE00BDC7CW58
|Management Fee||1% per annum|
|Administrator||SEI Investments – Global Fund Services|
|Custodian||SEI Investments Trustee and Custodial Services (Ireland)|
|Firm Compliance||Optima Partners|
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