Cerno Capital Posts

Cerno Pacific continues to outperform in weaker markets

By |2020-03-10T12:12:58+00:00March 10th, 2020|Cerno Capital, Cerno Capital Posts, General Investment, Regions|

After six weeks of draconian restrictions on movement in China, new COVID-19 cases have dropped substantially within the country. However, cases outside China are beginning to spike (reaching 105 countries at the time of writing), creating fear inside equity and commodity markets worldwide as supply disruptions create demand vacuum. The de- facto oil price war launched over the weekend subsequently triggered a day of panic selling. The year-to-date performance of the Pacific Fund is -1.8% (prices as at 9th March), which compares to the MSCI AC Asia Pacific Index -11.2% in GBP terms. The portfolio’s relative resilience stems in part from its natural tilt to balance sheet quality, which we have expanded on in a prior note (link below). In addition, as markets extended into 2020, we added to our currency hedge positions in the Japanese yen. Currency positioning added +1.2% from February through to March. The Pacific Fund is a concentrated portfolio investing in innovative companies across the Asia Pacific region. Our focus is on major structural changes and technology upgrades, and we look for companies with quality balance and cash generation in expanding addressable markets. The fund has 15% exposure to Health Care and 24% exposure to online [...]

Global Leaders balance sheet further strengthened

By |2020-03-09T11:09:50+00:00March 9th, 2020|Cerno Capital, Cerno Capital Posts, Cerno Global Leaders, General Investment|

Last week, we reorganised the Global Leaders portfolio to reduce implicit leverage. Four companies have been sold: FedEx, Oracle, Rockwell and Waters. Capital released from these names has been recycled into all the other portfolio holdings. The net effect of these changes is to improve the financial backing of the portfolio and net debt to equity falls from 25% to 20% as a consequence. The actual improvement is a little better than this as Waters has a negative equity balance due to share buy-backs and therefore does not submit to conventional debt to equity analysis. Whilst we considered this action, we looked also at debt service levels. Although none of the companies we own are in any way constrained on their ability to service debt, we have taken a very conservative measure in light of the widespread effects of the spread of the coronavirus. As the fund is fully invested at all times, the net reallocation further emphasises financial strength in a portfolio that already had good characteristics in this regard. Whilst it is unusual for one factor to dominate a multi-factor investment process, it will happen on occasion and the coronavirus is an exceptional phenomenon. Should the virus scare [...]

Coronavirus and economies – thoughts from Russell Napier

By |2020-03-05T13:15:19+00:00March 5th, 2020|Cerno Capital, Cerno Capital Posts, General Investment|

Banks will be at the forefront of this given that missing interest payments will be the norm not an exception in a pandemic. This will come in several forms: 1) Forbearance. These measures are already in place in China and I are beginning in Europe. Banks would be told not to foreclose of businesses and individuals who did not make interest payments. I also think that such a policy might be quite difficult to reverse as politicians might get a taste for this form of intervention. Given banks’ incomes would decline, they would need a cash flow to replace the missing interest payments and this would likely be in the form of loans from central banks. 2) Fiscal expansion & tax forbearance. Useful but hardly likely to close the gap if everybody is indoors but there are still things that can be done in terms of delaying tax payments. It might not have a lot of impact but it will get key players, such as Germany, over the Rubicon to a world where fiscal expansion is acceptable. It might be enough to get Eurozone countries to back Lagarde’s plan for “helicopter money”. 3) Purchase of corporate debt. Corporate debt is [...]

Cerno Capital Screening of ‘Close’ at The Soho Hotel

By |2020-02-28T13:57:13+00:00February 28th, 2020|Cerno Capital, Cerno Capital Posts, Events, Other Posts|

On Wednesday 26th February Cerno Capital hosted a screening of ‘Close’, followed by Q&A with the director Vicky Jewson, at The Soho Hotel. Vicky has quickly gained recognition for captivating audiences with compelling female narratives. Her desire to bring more authentic female characters to the action genre was the inspiration for her latest feature film. ‘Close’ is an action thriller, based on of the world’s leading female bodyguards, Jacquie Davis. The film follows battle-hardened bodyguard Sam who, when attackers target the heiress she's protecting, must scramble to save her client -- and teach her how to fight back. In the Q&A following the film, Vicky explained her processes and inspiration behind the project, as well as detailing some of her further upcoming work, which we look forward to following with great interest. Photos from the evening are available on our Flickr account here, and ‘Close’ is available to screen on Netflix here.              

Accenture added to Global Leaders portfolio

By |2020-02-26T13:22:45+00:00February 26th, 2020|Bottom Up, Cerno Capital, Cerno Capital Posts, Cerno Global Leaders, General Investment, Other Posts|

Accenture is the largest and most diversified independent technology consultant and outsourcing provider globally, serving customers in over 40 industries in more than 120 countries. Formally established in 1989 (but operating since the 1950s), Accenture began life as the consulting division of the then accounting giant Arthur Andersen and subsequently broke off from its scandal-ridden parent in 1998. Ever since its founding, Accenture has had a mandate to focus on business and technology consulting related to managing large-scale system integrations, which has differentiated it from peers, who have tended to emphasise management consulting. Under its former CEO Pierre Nanterme and now Julie Sweet, Accenture has followed a strategy of continuously identifying and going after new high-growth verticals, aided by the institutional experience and insights gained from the numerous industries they work in. This approach enabled the company to stay agile and detect emerging technology trends early, understand how it can be integrated into business operations, thereby remaining relevant to their clients in an advisory role. Today, the company derives over 60% of its revenues from ‘new’ businesses, including digital, cloud, connectivity and cyber-security, and actively exploring emerging areas including block-chain, quantum computing and AI. In a fast-changing world, the urgent [...]

Cerno Capital sponsors Maisie Everett, Olympic fencing hopeful

By |2020-03-05T09:16:45+00:00February 18th, 2020|Cerno Capital, Cerno Capital Posts, Other Posts|

Cerno Capital is delighted to announce its support and sponsorship of Maisie Everett, cadet class fencer and future Olympic hopeful. Having recently been awarded a sports scholarship at Millfield School, home to one of the largest dedicated fencing academy facilities in the country, Maisie has been selected for the second time into the U14 England Fencing Team, and is currently training hard, having won the 2020 South West Championships ahead of the Nationals in May. Ranked as No. 3 fencer in the country in her class, Maisie first picked up an Epee aged 10, and has since competed nationally and internationally. Now 13, she has been focusing on improving her speed, precision, and strength, building on her competition success in the previous year where she  last year where she won 5 gold, 1 silver and 6 bronze medals. Maisie has been receiving support from the GLL Sport Foundation for three years, one of the largest sports talent programmes in the country, which has provided her with training support and facilities access and has previously supported Olympic and World champion athletes Tom Daley and Dina Asher-Smith. With this background, coupled with her coaching at Millfield, we hope she will continue to [...]

Farms Not Factories: Inspiring British Food ‘Sovereignty’

By |2020-02-17T14:46:49+00:00February 17th, 2020|Cerno Capital, Cerno Capital Posts, Events, Other Posts|

On Wednesday 12th February Cerno Capital hosted a dinner with Tracy Worcester, environmental campaigner and founder of Farms Not Factories. Farms Not Factories is a non-profit organisation working through film-making and campaigning to support the ‘food sovereignty’ movement. Their works seeks to expose the true and hidden costs of cheap meat produced by animal factories, and the goal is to inspire consumers to only buy meat from local, healthy, high welfare farms. Beneath the surface of cheap accessible meat purchasing lie devastating hidden costs. The globalisation of the farming industry continues to undermine small-scale, high-welfare producers facilitating a loss of food sovereignty in the UK. The large-scale producers seek to maximise short term financial profit to the detriment of animal welfare leading to a multitude of abuse issues (e.g. overcrowding, neglect and denial of natural behaviours). Mass production intensive farms care little for the long term external costs associated with pollution of the air, sickening local residents, and of the soil and water table, rivers and sea. Further issues associated with these ‘factories’ include the rise of antibiotic resistance, a time-bomb threatening the future health of the population. Tracy Worcester is spreading the word on the true extent of these [...]

Financial Robustness of the Cerno Pacific Portfolio

By |2020-02-05T15:34:36+00:00February 5th, 2020|Asian/emerging Equities, Asset Allocation, Cerno Capital, Cerno Capital Posts, Other Posts, Regions|

The emergence of the novel coronavirus (nCoV) has serious short term consequences for growth and demand in China. In this journal we address the financial position of the stocks in the TM Cerno Pacific portfolio and their revenue sensitivity to a protracted downturn in activity within China. The situation has naturally led to parallels being drawn with the SARS epidemic of 2003-04. While the pathologies are linked the context exhibits marked differences. At this stage of endemic spread, some caution is warranted when extrapolating outcomes for nCoV. In our recent Investment Letter, Camus and all that, we discussed these points of difference. China was just 5% of global GDP in 2003 vs 17% today. The measures put in place by the Chinese government, most notably the quarantining of entire cities, are more severe and restrictive than applied during SARs. Beijing’s approach to nCoV is akin to corpus calloscotomy, or split-brain surgery, whereby the link between the two hemispheres of the brain is severed to prevent the spread of seizures from one to another in patients with severe epilepsy. A drastic measure which is effective in its targeted goal but risks long lasting adverse consequences. Aside from the tragedy of human [...]

Global Equity Markets – US versus Rest of the World

By |2019-12-03T14:48:05+00:00December 3rd, 2019|Asset Class Returns, Cerno Capital, Cerno Capital Posts, General Investment, Other Posts, Sectors & Corporate Performance|

Technology has been one of the best performing sectors in equity markets over the last 10 years, accounting for a significant portion of broader equity market performance. This phenomenon has been felt disproportionately in the US and has been backed by a strong relative earnings trend. Source: BCA  The increasing weight of Technology in the US, driven by earnings and upward rerating has been at the forefront of the trend for US equities and has pushed US performance versus the Rest of the World (RoW). Source: BCA We have gone back to test this phenomenon and to try to understand how much of a role momentum has played. Momentum, at its simplest expression, is the practice of picking winners by buying the winners. In the below-described test, we find that any combination of the largest listed US Tech companies of five years ago would have outperformed the market in the last five years. We took the largest 10 tech names from the S&P 500 from 5 years ago and used a Monte Carlo simulation (which generates a large number of random results subject to constraints) using 2,000 combinations of weights for the basket (with a 5-15% boundary restriction on individual [...]

Q&A from recent Global Leaders Breakfasts

By |2019-11-07T12:33:27+00:00November 7th, 2019|Cerno Capital Posts, Cerno Global Leaders, Events|

How do you contrast between picking companies and picking industries? The one is integral to the other. The obvious latch points are the companies but we always need to understand their environments. We own VISA and therefore it is necessary to have a view on the whole marketplace including MasterCard and to an extent American Express. The big tide here is the shift from credit to debit and how the rising mix of e-commerce is pulling returns up. The big existential risk is that a platform such as Alipay gains access and related technologies undermines the incumbents. Semiconductors is an example of an industry where competition has been winnowed down by virtue of the increasing capital costs of capex and R&D to compete at the cutting edge.  In 2000, 28 companies were capable of producing chips with the most advanced technology. Today that number is 3. We own Samsung and TSMC within the portfolio. The relentless ratchet in spending requirements is well illustrated by the cost to purchase the newest photolithography machines for EUV from ASML. These cost some 4x the prior generation. The next phase machines will cost 2x this again. The extremity of the technological frontier in semiconductors [...]