Benefits of investing in BHD

A global macro strategy can be a very effective strategy providing the following benefits:

• provides a more effective means of identifying both opportunity and risk on a global basis as markets are interrelated with changes often flowing from currency and bond markets to equities and commodities;

• allows for a fundamental view of a market to be expressed broadly through a range of futures contracts including equity market indices, fixed income, currencies and commodities;

• allows for speed of action as investments are made in deeply liquid markets. Speed is critical in a volatile market when news is moving swiftly around the globe and sentiment can change quickly;

• allows the investment strategy to utilise market volatility to attempt to capture greater profits by entering and exiting positions over short time frames as markets move up and down around a trend;

• enables diversity for investor portfolios largely limited to Australian markets due to difficulty in accessing global markets;

• seeks to benefit from market inefficiency in investment classes not readily available to Australian investors; and

• is very scalable and liquid as themes are expressed in deeply liquid markets including equity market indices, fixed income, currencies and commodities.

About the Fund

Benjamin Hornigold Limited (ASX: BHD) seeks to increase the value of its portfolio by allocating capital to investments in which its investment manager has the highest conviction. It also aims to provide investors with exposure to global markets as well as domestic investment opportunities in the listed and unlisted sectors, investing in various financial products, including listed and unlisted equities, cash and cash-like investments, derivatives, currencies and structured products.

Investment Process

The Manager implements an investment process which is structured to provide a careful, robust and considered analysis and identification of opportunities for investments. The key elements of this process are outlined below:

Identification of value based upon fundamental analysis

The Manager's fundamental analysis utilizes an assessment of macroeconomic trends covering key economic measures including inflation, economic growth, employment, international money flow, credit spreads and business and consumer sentiment. The fundamental analysis also uses assessment of valuation using comparisons of valuations over similar historical periods including price earnings ratios, price to book ratios, purchasing power parity, inflation adjusted commodity prices and the relationship between bond prices and inflationary expectations.

Identification of existing trends

The Manager identifies trends utilising a technical approach considering key markets to identify where clear bull and bear market trends appear. The Manager then identifies situations where a fundamental under-valuation or over-valuation may exist and where a trend may be favourable.

Identification of prevailing conditions and the actions of policy makers

The Manager considers prevailing conditions including importantly the actions of key policy makers. In recent times the primary influences over prevailing market conditions have been either or both central bank action or government actions or reforms.

Analysis of international money flow

International money flow refers to the movement of funds or capital from one country to another in what are usually short to medium term profit seeking ventures. The flow of funds is usually based upon differentials in exchange and interest rates as well as perceived levels of risk between markets. Quite often these flows can cause instability and have drastic impacts on markets and their underlying values.

Portfolio allocation

Capital will be allocated to assets where the Manager believes there is a clear imbalance between the Manager's underlying valuation of the asset and the current market price. Portfolios will generally be spread across different geographical markets as well as asset types creating diversity and a natural hedge against adverse movements in any particular investment.

How we invest your money

The Company's investment strategy is to create a Portfolio of investments with potential for providing returns to Shareholders, as assessed by the Manager using its high conviction investment approach. The Manager will focus on identifying and capitalising on opportunities which the Manager believes are undervalued and provide growth potential. This approach will be supported by detailed analysis using the Manager's conviction matrix. 

The Manager will utilise its experienced investment team to implement this strategy  and will adopt a staged investment process in selecting appropriate investments.

The potential investment universe in which the Manager may identify investment opportunities is broad, and will not be restricted to particular sectors, geographical regions, financial products or benchmarks. Instead, investment decisions will be based on the level of conviction.

As part of its overall investment approach The Manager believes that an effective way to generate returns, remain liquid and protect downside risk is to employ a global macro investment strategy, and to identify imbalances in valuations across domestic and global markets.

Global macro investment strategies utilise fundamental information and economic theory on key inputs including economic growth, inflation, interest rates, currency movements, global imbalances and changes in commodity prices to formulate forecasts and trends for different investment markets. The Manager believes that an effective investment strategy requires a global approach because markets are interdependent with the actions of investors, central bankers, consumers and policy makers in one market having flow on effects, actions and reactions across many markets.

Asset allocation ranges

Equity securities

• Listed global equities: 0-50%

• Unlisted global equities: 0-50%

Cash and fixed interest products

• Cash: 20-95%

• Interest products: 0-50%

• Listed bonds and debt instruments: 0-50%

• Unlisted bonds and debt instruments: 0-30%

Derivatives and foreign currency

• Foreign exchange contracts: 20-80%

• Global exchange traded futures contracts including equity market indices, currency and interest rate futures: 10-85%

• Structured products: 0-20%

The investment parameters are set widely in order to allow the Company flexibility to invest as opportunities arise. While the Company will generally maintain between 5 to 10 investment ideas, these may be implemented via several investments with the same underlying theme. For example, the Manager may determine to invest in global equities, and implement this idea by holding long positions in European, Japanese and Chinese equities. This would be regarded as three high conviction "investment ideas".