InvestmentsDec 2 2014

Markets slump triggers evasive manoeuvers on cancer trust

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The Battle Against Cancer Investment Trust (Bacit) has upped a play in long/short funds in a bid to protect investors as several markets reach peak levels.

The trust, headed up by former F&C manager Jeremy Tigue, has increased its exposure to funds that aim to deliver positive returns regardless of the direction of markets.

To fund the move, the trust’s managers have moved to “reduce [the trust’s] net long equity exposure and thus limit losses in any downward move in markets”.

The portfolio shift comes at a time when stockmarkets have largely continued their upward trend – albeit with a volatile October.

The S&P 500 index of US shares last week closed at a third successive record high of 2,069, marginally shy of a previous intra-day high of 2,071.

“Long-biased equity funds peaked at almost 30 per cent of [the trust] 12 months ago and now represent less than 25 per cent of the portfolio, while long-short equity funds have been increased from 23 per cent to 29 per cent,” the trust’s management said in a half yearly update.

“Hedge funds have risen from 44 per cent to 50 per cent, and the net long bias of the [trust], which peaked at around 60 per cent, is now running [less than] 50 per cent on our estimates.”

The trust launched in October 2012 and intends to invest up to 1 per cent per year of its net asset value to back drug development and medical innovations by the Institute of Cancer Research (ICR).

It also aims to make an annual charitable donation equal to 1 per cent of its value, split between ICR and the Bacit Foundation – effectively a list of charities.

In July 2013, the trust made its first £1m donation to charity following strong performance.

Elsewhere, the managers said a position had been bought in another fund, bringing the number of funds in the portfolio to 32.

The update said the investments in Japanese and African equities “increased in value substantially”, while investments in US and European credit also worked well.

“These were partially offset by losses in UK, European and Russian equities, and commodities,” the managers said.

“The underlying managers faced a variety of challenges, particularly in Europe, where geopolitical uncertainties on the eastern front started to impact sentiment and demand in core Europe, while inconsistent economic data sent mixed messages to markets.”

The trust has 10.8 per cent in Japanese equities and 21.8 per cent in European equities, which the managers said had been volatile but would be maintained.

“Both Europe and Japan are at an earlier stage of recovery than the US, while Japanese and European equities are less expensive than US equities,” the managers said.

“Both are benefiting from currency devaluations and will benefit more than the US from lower international oil prices, since Europe imports more than 50 per cent of its energy needs, Japan more than 90 per cent and the US just 15 per cent.

“Indeed, lower oil prices are a negative for some US producers, as at current price levels [$76 (£48)/barrel] some shale and oil sands production is uneconomic.”

The managers added they expected some form of monetary easing to continue in both Japan and Europe and welcomed other, more wide-ranging changes.

“In Japan, governance changes are leading to share-buybacks, higher dividend payouts and increased capital expenditure, and in Europe credit is starting to flow again after a two-year contraction,” the managers said.

“Finally, structural reform is key to both recoveries. Plans for this have been more clearly described in Japan – where they include proscribing equity purchases for governmental pension funds – than in Europe.

“For these reasons, the trust’s Japanese exposure is long-biased, whereas almost all of the European equity exposure is through hedge funds.”