29 January 2021

Looking for opportunity in every difficulty

At the end of the year, the scoreboard looks good and we are pleased with the performance of the funds but one year performance numbers tell only a fraction of the story and this is no time for backslapping

by James Godrich

Fund Manager


Of greater interest, we think is to remind you about the investment process that we run, to talk about the businesses into which market volatility allowed us to make investments in and also to highlight some of the mistakes that we made along the way.

As a reminder, we don’t try to generate returns by making calls on whether Brexit, Joe Biden or a strong Siberian wind will be better for the UK, Japan or Fixed Income. We do try to generate returns by being selective about the assets that we own within those (and other) specific geographies or asset classes.

In an ideal world we hope to gain exposure in the funds through direct investments – this is the most cost effective method and allows us complete control of every pound of capital put to use. However, we are also aware of limitations to our own knowledge, resource and even language within a global multi-asset fund. So, we recognise that at times it is most sensible for us to use a specialist active fund manager with a clear process, an alignment of interest and a reasonable cost to try to generate outperformance within that region or asset class. Where we are unable to find a fund manager that we think can provide that, it is especially important that we have the discipline to, on occasion, use a passive fund to gain good value exposure – we are pleased that at present only roughly 10% of our exposure is gained through this least preferred method.

We are also pleased that market volatility in 2020 afforded us plenty of opportunity for our favoured investment style – direct investments into fantastic businesses made at what we think are sensible prices. In January, we invested in PayPal, the global leader in online payment processing. In March, we invested in Games Workshop, the number one miniature war-gaming company in the world, and Berkshire Hathaway, the insurance conglomerate run by Warren Buffett, In August, we invested in Electrocomponents, the industrial distributor. In October, we invested in Workspace, the freehold owner of flexible office space across London. In November, we invested in the Lindsell Train Investment Trust, a vehicle through which we can access cash flows to one of the most successful asset management boutiques in the UK. And in December, we invested in JP Morgan, one of, if not the, largest financial institution in the world. All of these stocks generated a positive return for the funds since investment and whilst this is pleasing, it is their future prospects that excite us more.

Though it is satisfying to report these positive actions, our performance was not without fault (and we warn you that it never will be). Early in the year, we used certain active funds to gain 100% of our exposure in certain geographies or asset classes – whilst we think that conviction is important, without any other option it can be limiting. We will retain conviction in our approach but note that optionality in everything we do will be an important part of our armoury in an uncertain world. Unfortunately, we made mistakes in our direct investments too. We think some of the best opportunities are found in least comfort and we have, and will continue to, make thoroughly researched investments into businesses whose long-term prospects we think look significantly better than their short-term ones. However, we at times allocated too much capital to this style and have learnt to remind ourselves that valuation in investments is often a poor tool for timing.

2020 was a difficult year but we were pleased with the results. We think that 2021 will be no easier but we will finish this report with a quote from Winston Churchill, ‘a pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty’. We are optimistic about 2021.

James Godrich, fund manager of the CSI Funds.

The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.

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