James Spence

About James Spence

James is a co-founder of Cerno Capital and lead manages a number of the firm’s collective and private portfolios. After qualifying as a chartered accountant in London (Coopers & Lybrand, 1989) he relocated to Asia. Between 1991 and 2004 he worked as an equity analyst, head of research, and latterly as an equity strategist at WI Carr, Paribas, HSBC and UBS, based variously in Hong Kong, Singapore and Jakarta. James graduated from the University of St Andrews, Scotland with an MA in Philosophy & Logic in 1986. James is a Member of the Chartered Institute for Securities & Investment.

Investment Letter from Hong Kong – March 2018

By | 2018-03-27T08:49:49+00:00 March 27th, 2018|Cerno Capital, Investment Letters|

At the National People’s Congress in Beijing, 2,958 of 2,963 cowed delegates approved the change in China’s constitution to allow the Presidency to be extended beyond the two-term limit set by Deng Xiaoping in 1982. Deng’s then reform was promulgated to prevent the repeat of the Maoism’s attendant madness. In a very large country, disastrous policies have terrible effects on millions. Back then in was murder and starvation, what might be the longer-range effects of a resuscitation of one-man rule in China? For surely all dictatorships go bad, even the ones that start out well? The possible outcomes need to be understood in a modern context. In today’s world, even in China where an invisible blanket of surveillance and censorship wraps its citizens, it is possible to lampoon the leaders. Xi’s avatar is Pooh Bear: the tubby fellow attaching himself to a pot of honey. “Find the thing you love and never let go.” When you rule by fear you do not know what your friends let alone your enemies think. All the problems that bestow China from the 12th of March onwards are Xi’s to own. Cadre may be fired, booksellers disappear, businessmen and women interned with impunity but [...]

Investment Letter – February 2018: Cobras in the Basket

By | 2018-02-12T11:05:37+00:00 February 5th, 2018|Asset Allocation, Cerno Capital, Cerno Capital Posts, General Investment, Investment Letters, Strategy|

Cobras in the Basket: Bonds, their curves, their relationship with equities and market tops In the last two months, we have seen a meaningful rise in bond yields. Key maturities in the US curve have crept up. The 2Y US Treasuries now stand at 2.15%, the 5s (5 years maturity) have moved up to 2.53% and the 10s to 2.73%. This has not been accompanied by any visible change in central bank policy or rhetoric. It is our belief that investors should take heed and begin to adjust their portfolios, if they have not already done so. This is not the first time in the post crisis period (a period that will soon be 10 years long) that bond yields have fluttered. During the so called “taper tantrum” that occurred between February 2013 and January 2014, those same maturities ran up considerably: 5s went from 0.63% to 1.86% and 10s 1.62% to 2.80%. There were other noticeable sell offs after the post 2008 low. The 10s moved from 2.0% points in early 2009 only to crest at 4.0% in 2010. As we can see, in those previous periods, yields then proceeded down, with the curve compressing to new lows. [...]

Investment Letter – January 2018

By | 2018-01-09T11:43:05+00:00 January 9th, 2018|Cerno Capital Posts, Investment Letters|

2017 was a decent year for the firm’s investment strategies, all of which delivered against their objectives. A little more information can be found here: https://cernocapital.com/2017-performance-summary With the books closed on 2017, we reserve the rest of this short letter to matters pertinent to the near and far futures. It remains our somewhat paradoxical view that investors should be more concerned about good economic news than bad. Somewhat against the general habit of doubting the underlying forces that have been moving economies and markets, our view is that that more concern should be directed toward the consequences of the recovery being too good, too wholesome and too universal. For, the more widely accepted that conditions are positive, the more universal the bullishness and the quicker the central bank response to normalise liquidity and interest rates. The economic world is running counter to that of politics. For most folks with an international outlook, whether owed to their origins, migrations or mindsets, global politics have become stinky. Far from advancing toward the End of History suggested by Francis Fukuyama, we are snaking off in another direction. It has all been a reminder that life, especially the life of nations, is not an [...]

2017 Performance Summary

By | 2018-04-06T08:23:05+00:00 January 8th, 2018|Cerno Capital, Cerno Capital Posts, Cerno Capital Posts, Cerno Global Leaders, Global Leaders|

2017 Performance Summary Performance summaries for the main investment strategies, all numbers after fees. Note past performance is not a guide to future performance. Global Multi-Asset TM Cerno Select and its sister fund Cerno Unconstrained are global strategies investing across multiple asset classes with an unconstrained approach to asset allocation. The return target is UK CPI +3% by investing in an approved range of investment vehicles, including direct securities, passive funds and specialist active managers. Fund/Strategy 2017 3 Year Inception** Annualised since inception** TM Cerno Select +8.0% +18.9% +62.2% 4.9% CPI +3%* +5.7% +14.1% +71.5% 5.5% *Dec-17 CPI calculated using 3.0% YoY forecast**Strategy inception October 2007: EF Global prior to September 2013, TM Cerno Select thereafter Global Equity The Global Leaders Equity Strategy invests in global companies with sustainable competitive advantages delivering above average returns. Its target is to deliver performance above that of the MSCI World Total Return (GBP) Index on a 3-year rolling basis. The fund will hold 25-30 securities, equally weighted, selected according to a distinct investment thesis that accents industry structure, the sustenance of return on capital and secular growth. [...]

Investment Letter – November 2017

By | 2017-11-13T17:15:38+00:00 November 10th, 2017|Cerno Capital Posts, Investment Letters|

Stock markets could fall 10% next week. This is a perfunctorily true statement but not worth tuppence as a prediction. For it is true every week of the year. 2017, so far, is an unusual year in that it has not featured a correction of 5% or more in world stocks. It remains our view that the chief risk in front line asset classes is the gravitational pressures exerted by valuations which have crept ever higher in the past 5 years. A correction in the equity market would have the effect of clearing the air. We are of the view that it would be unwise to be active selling during such a correction. For, in the lee of any correction, the proximate fundamentals will remain shaped by a picture of synchronous global growth, rising aggregates of industrial production, recovery in Europe and rising market shares of the world’s best companies in many industries. None of this plausibly presages a recession in corporate profits, in the near future. Other fundamentals to keep well in mind are interest rates and inflation. We are in the upward swing of an interest rate rising cycle and ultimately rates may do for the market but [...]

Investment Letter September 2017

By | 2017-09-15T14:57:13+00:00 September 15th, 2017|Investment Letters|

Over the past 10 years - in the liberal parts of the world at least - political and financial economies have forked apart. The large scale corporate world has become stronger as government authority has paled. Doubtless, on the government side of the ledger, this is partly due to an erosion of faith in governments following their interventions to save banks and shore up the indebted after the Global Financial Crisis. Large companies which are not banks have been able to take a free ride on a progressively cheaper cost of capital and load up on cost-saving technologies. With freely available capital and cheap debt, companies have variously invested, bought out competitors, lifted their dividends and bought back their own shares. In the US, buy-backs have become a mania. Strong companies have become stronger and companies of all types have become greatly better at marshalling technologies. Technology, often spoken of as a disrupter and a general threat, has in fact facilitated a multitude of improvements in the way in which business is conducted: benefits that accrue to the adopting company if not always their customers who rightly sense they are being kept at bay. For example, by computer driven enquiry [...]

Cerno Global Leaders – The Podcast

By | 2017-10-17T10:30:22+00:00 September 15th, 2017|Cerno Capital, Cerno Capital Posts, Cerno Capital Posts, Cerno Global Leaders, General Investment, Strategy|

On November 1st, Cerno Capital will launch a concentrated, low turnover, global equity fund, TM Cerno Global Leaders. The strategy has been active in client accounts since 2013 and target 25-30 holdings are identified via proprietary research from our investment team. In the captioned podcast, Lead Manager James Spence explains the underlying thinking and portfolio structure and protocols which we believe make it a unique offering in the global equity sphere. Listen to the podcast here, or using the player below.

Investment Letter June 2017

By | 2017-06-11T14:46:44+00:00 June 11th, 2017|Investment Letters|

On the last page of his book, Homo Deus, Yuval Noah Harari poses the questions: “What’s more valuable – intelligence or consciousness? Intelligence is decoupling from consciousness. What will happen to society, politics, [investment] and daily life when nonconscious but highly intelligent algorithms know us better than we know ourselves?” I have added the word investment. This book certainly sets the mind noodling. We are often being told – mainly by academics and parts of the FT – that there is little point in active asset management. Their conclusions, often as not, are based on the average performance of the average manager. We think not and wish to rebutt such a reductive line in reasoning. Who would ever be interested in the average outcome from an unsampled universe? In football, there is little point in supporting an average team – unless you happened to come from the town itself. That’s why people all over the UK (and wider) support Liverpool, Manchester United and Arsenal and why Mansfield Town – who finshed exactly half way down League Two last season – has an average home gate of 3,774. To our minds, the universe of – equity managers in this case – [...]

Investment Letter from Hong Kong March 2017

By | 2017-03-26T14:12:54+00:00 March 26th, 2017|Investment Letters|

The stimulating free port of Hong Kong remains a compelling eye glass through which to comprehend China, its politics and economy. All its 5.5 million adult inhabitants are China watchers, by inclination or necessity. Their world view was formed, to some extent, by the Cultural Revolution. The most recent arrivals in Hong Kong are investors from China and increasing numbers of economic migrants from Europe, most notably France. The latter’s response to the despoir of home is to find hope in Hong Kong. "Try Hong Kong" they used to say, not always in kindness. Like London, Hong Kong operates as a safe-haven from volatile regimes: a portal through which Chinese capital passes, sufficiently easily to slay the notion that China’s capital account has effectively closed. Somewhere in the past two years - and its is difficult to say precisely when – the authorities in Beijing ceded their former near total authority on its currency policy with respect to the renminbi (RMB). The secondary effects of running so much capital through a thin spigot into Hong Kong are increasingly bad for the bulk of the population. Property prices there are debilitating to those without established ownership, small businesses struggle and young [...]

Investment Letter January 2017

By | 2017-01-31T10:05:19+00:00 January 31st, 2017|Investment Letters|

The election of Donald Trump has caused perturbation from Baltimore to Beijing: a rude volte face to the graceful Obama years, a reversal of international liberal orthodoxy, a rebuttal of globalisation, an aggressive restatement of weaponised American hegemony, and on. Those that voted for him love it, much of the rest of the world is aghast. While many are offended, some are amused. In politics, the next few years will be a wild thrash. This may not last long and hopefully no warheads are loosened off. Part of the emerging mash of policy – on energy most notably – look like bizarre refutations of global trends that will not brook reversal. Others - resisting China’s claims over the Western Pacific - maybe overdue. There is more to come. Trump did not find time in the first week of his Presidency to fall out with Janet Yellen and the Federal Reserve. As sure as apples is apples, that will happen. It is not a great time to be an agency wonk in America. Under the last administration, even the hunting down of Osama Bin Laden was a meditative affair, a point captured in the line from Zero Dark Thirty where a [...]