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 names (B2B and B2C), where earnings should be relatively shielded from negative COVID-19 impact. The fund currently has higher than usual cash position, which we will look to deploy as valuations become more attractive on the fallout.
Further details on the fund’s financial positioning can be found in a note published last month: https://cernocapital.com/financial-robustness-of-the-cerno-pacific-portfolio