Cerno Capital Posts

What does credit default pricing tell us about the cycle?

By |2018-11-23T12:55:49+00:00November 23rd, 2018|Cerno Capital, Cerno Capital Posts, Credit, General Investment|

Credit risk is the risk that companies do not repay their debts. This risk can be measured and traded. CDX IG is an index comprising the 125 most liquid single name Credit Default Swaps (CDS) in the investment grade space in the US. The most commonly traded tenor point is 5 years and the index is refreshed by the provider every 6 months to maintain maturity and liquidity profile of the underlying names. We are currently on series 31 (meaning the index has been running in one form or another since 2002-2003). The index is quoted in terms of basis points and a quote represents the annual cost of insuring a notional amount of the underlying assets (as a simple approximation). For example; with CDX IG NA currently trading at 78bps (0.78%) an investor paying to insure US$10mn for 5 years would pay US$78,000 annually. In return for this insurance premium they would be made whole (minus the recovery rate) in the event of any defaults during the period, proportionate to the size of the constituent. On the flip side, the seller of such a contract would receive US$78,000 annually whilst being on the hook for the above obligations. These [...]

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Nick Hornby wins the Outstanding Achievement Award at the Spear’s Wealth Management Awards 2018

By |2018-11-07T11:52:39+00:00November 7th, 2018|Cerno Capital, Cerno Capital Media Mentions, Cerno Capital Posts|

On Tuesday 6th November, Nick Hornby was awarded the top award at the Spear’s Wealth Management Awards 2018, held at The Dorchester. The Outstanding Achievement Award is the highest reward that Spear's give out at what has come to be known as the UK’s “financial Oscars”. The awards celebrate the very best in wealth management, private banking and law, acknowledging innovation, success and outstanding contributions to  wealth management and beyond. Presenting Nick with his award, the judges commented that, “[Nick is] a person of top quality, a fantastic ambassador for the industry doing something really different. A standout, praising his huge credibility”. We are delighted that Nick’s dedication to Cerno Capital’s investors over the past 11 years has been recognised by our peers.

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Equity Markets – Swords Drawn

By |2018-10-12T15:55:21+00:00October 12th, 2018|Asset Allocation, Cerno Capital, Cerno Capital Posts, Other Posts|

The sudden break-down in headline indices is stimulating a great deal of considered comment and a tweet or three from President Trump. The Fed’s fault? Well, in part. We summarise Governor Powell’s approach to monetary policy as “giddy up”: to temper the US economy during a period of extranormal growth and build some reserve for future cuts when the next crisis comes along. The second part has been referred to by past Governor Bernanke as “putting bullets in the gun”. In the very short term, portfolio managers of all stripes are assessing the collateral effects of this downward move in equity markets. Questions being asked are how is the dollar responding (down a bit), how is gold responding (up a bit), how is oil responding (down US$2bbl) and finally how is the US bond market responding (down a bit in capital value terms)? Measurement of these cross correlations allows people to assess whether the correction is a crisis - the very short-term conclusion being no. The more worrying combination would be a strong move upward in gold and downward in bond yields which would be reflective of actual cash flows out of equity markets into haven assets. This has not [...]

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Outside In: Discover at Cerno Capital

By |2018-09-28T10:49:05+00:00September 28th, 2018|Cerno Capital, Cerno Capital Posts, Events, Other Posts|

Outside In and Cerno Capital are pleased to present Outside In: Discover, an exhibition celebrating artwork by three Outside In artists. Outside In was founded in 2006 at Pallant House Gallery and became an independent charity in 2016 following a highly successful decade. The award-winning charity works to provide a platform for people who face significant barriers to the art world whether due to health, disability, social circumstances or isolation, and currently supports 2,600 artists. We were able to collaborate with Outside In for this exhibition, displaying colourful works that are varied in style and representative of artists from diverse backgrounds reflecting Outside In’s inclusive ethos. All three exhibiting artists create work with strong, vibrant imagery, each with a very unique and distinct practice. Nnena Kalu works in an obsessive and determined way to develop a range of work with an underlying approach of a systematic layering. In the works on display, she uses repetitive lines which she draws in circular motion, responding to the rhythm and noise of creating the work. Once she has applied a painted background, she creates repeated lines with a circular motion, frequently following the same route to create heavily worked into vortex shapes and [...]

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Cerno Capital awarded HK Connect status

By |2018-09-26T10:05:55+00:00September 25th, 2018|Cerno Capital, Cerno Capital Posts, General Investment, Other Posts|

Following several months of work, we have been awarded HK Connect status which allows us to invest in Shenzhen and Shanghai listed ‘A’ shares (formerly known as local stock). The ‘stock connect’ link between China’s mainland markets and Hong Kong relaxes restrictions that historically split the Chinese stock market between shares targeted at local investors and those available to international investors. The link was first launched in 2014 between Shanghai and Hong Kong. In late 2016 it was further extended to include the burgeoning, technology hub of Shenzhen. It allows mainland Chinese to purchase shares listed in Hong Kong and lets foreigners buy China A shares listed on the mainland. This vastly expands the range of possible investments we can make in the world’s most exciting economy. Fay Ren, Co-Manager of TM Cerno Pacific & Emerging comments: “The A-share market is more than twice the size of the H-share market, giving us access to a wealth of new ideas to explore. There are some real gems in the mix and we are thrilled with the opportunity to find and own them, in particular the more tech oriented entrepreneurial names that are little known outside the country”. Goldman Sachs, with whom [...]

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Ding, Dong Amazon.com – Bubble Valuation Techniques in Action

By |2018-09-17T09:00:15+00:00September 17th, 2018|Bottom Up, Cerno Capital Posts, Other Posts|

Imagine you have been diligently working away as an analyst in your investment bank and someday your boss comes to you and offers a promotion into the Technology team, specialising in e-fulfilment. The largest stock in your coverage is Amazon.com and your first order of business is to establish a price target for the stock from which a recommendation can be derived. All investment banks and brokerages require their analysts to provide price targets. Without them the sales function would struggle and it would be difficult to hang the logic of research recommendations on any peg. Amazon.com presents a particular challenge. It is the second largest listed company in the world, with a market capitalisation of US$969bn and, with US$1.68tn traded in its shares in the past 12 months, is of great economic consequence for “the Street”. Bloomberg indicates that 51 analysts have flagged coverage of the company, 47 maintaining a BUY, 3 advising HOLD and just a single SELL recommendation: from a Mr Allen Gillespie of South Carolina. Amazon.com has been a listed company for 21 years and profitable on a financial accounting basis only in the last 4. The company operates off very low margins, its net margin [...]

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Cerno Capital to Vote Against Proposed Acquisition of JLIF

By |2018-09-25T16:08:04+00:00September 7th, 2018|Asset Allocation, Cerno Capital Posts, General Investment, Other Posts|

Update: On the 24th of September, the shareholders of JLIF voted to determine the future of the trust. The turnout displayed a disappointing level of shareholder apathy with just 54% of the available votes being cast. Of the votes cast, 85% voted in favour of the takeover. The shares of JLIF will cease to trade on the 28th of September. Attention will now shift to other listed vehicles that may prove attractive to private capital. Such capital appears to be willing to operate with lower discount rates than the public markets deem prudent. The John Laing Infrastructure Fund Limited is a holding in Cerno multi-asset portfolios due to the attractive characteristics of the infrastructure assets it owns – principally, long term inflation linked cash-flows deriving from availability-based payments on socially and economically important infrastructure assets. On the 16th of July, the Board of John Laing Infrastructure Fund Limited (JLIF) announced that following an unsolicited approach from a consortium of Dalmore Capital Limited and Equitix Investment Management Limited (the Consortium), discussions were continuing over a Possible Offer to purchase the entire shareholder capital of JLIF at a price of 142.5 pence. On the 3rd of August, the possible offer became a [...]

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The Next Global Downturn: Corporate Debt & the Concept of Fragility

By |2018-07-24T10:14:59+00:00July 16th, 2018|Cerno Capital Posts, Cerno Global Leaders, Developed Equities, General Investment, Global Leaders, Other Posts, Strategy|

Our aim, within the context of the Global Leaders Fund, is to own great companies over multiple market cycles. In this way we operate over a timeframe where competition is scarcer, allowing us the best opportunity to outperform global markets. This overarching objective is underpinned by three concepts: growth, long term relevance (sustainability of returns) and financial soundness. All three are crucial in delineating the leading businesses we want to own. Companies that we can employ in a concentrated, low turnover portfolio and sleep comfortably at night. Growth is perhaps the easier to define: does the company have the tools at its disposal to compound earnings at an attractive rate over time. Relevance and sustainability has sharply diverging meanings depending on who one asks. Our preference is to cast the net as broadly as possible: simply, a company whose current earnings to do not borrow from its future earnings. This concept is wide ranging and influences the fund exclusions. Tobacco for example, where new customers must be found to offset the natural elimination of the existing base by the product itself. Old energy with the extensive disruption from renewables already in full swing. Banks, where inherent leverage hangs like a [...]

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The Custom Option

By |2018-07-11T08:54:19+00:00July 9th, 2018|Cerno Capital, Cerno Capital Posts, Cerno Global Leaders, General Investment, Global Leaders, Investment Quarterly, Other Posts, Strategy|

Conducting big business in the decades following the industrial revolution normally entailed the marshalling of labour and resources in a profitable sinecure. Fur trappers and tin miners, agriculture and energy, railroads and steel all fit this model. These industries persist today but are becoming scarce in the pantheon of very top companies measured by market capitalisation or economic value addition. Labour has mobilised, a thicket of laws exists to prevent excessive exploitation and monopolies of international scale are prohibited. Only perhaps in the world of software and social media have we seen the kind of recently accrued market share power that breeds exploitative practices: Microsoft’s dominance of operating system software is a matter of historic fact and Facebook’s control of the network effect across its platforms are prime examples of predatory corporate behaviour: rabid until checked. Outside these large and unusual cases, successful companies conducting business across multiple continents need to balance of standardisation against customisation. Standard so often entails stand-still which is a death curse for companies. At the other end of the spectrum, few businesses can adopt a fully bespoke offering and hope to grow beyond their artisanal roots. There is another category, companies and sometimes just one-person [...]

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Cerno Capital sponsors Team PCD in the Maidstone to Monaco Rally, 2018

By |2018-07-05T10:59:55+00:00July 5th, 2018|Cerno Capital, Cerno Capital Posts, Other Posts|

We were delighted to recently support David Bell, PCD Club, and Fraser Dyer, FED London, as they undertook the Maidstone to Monaco Rally in aid of the Parenta Trust, who build schools and provide education for pre-school children in Uganda.  Participants in the Rally have built 6 schools in the last 6 years, providing opportunities to some of the world’s poorest families. This year, the Rally group have raised £16,000 for the cause, which will provide education for 150 children. David and Fraser documented their journey over the Alps, which they share with us below: On Wednesday 27 June, 7 cars left Maidstone with a goal of getting to Monaco and back via the Swiss Alps in 5 days. The twist was that cars have to be bought for less than £500 and are decorated, coming in all shapes and sizes.  On our trip was an ancient Volvo covered in carpet; a Land Rover with 250,000 on the clock and a Vauxhall Corsa that was about to be scrapped.  Our car was a convertible 1997 MG MGF with 153,000 on the clock, easily the best car there!  We were kindly sponsored in our mission by Cerno Capital and a couple [...]

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