TM Cerno Global Leaders2018-07-12T14:21:18+00:00

TM Cerno Global Leaders

TM Cerno Global Leaders Fund Information

The best prospect for outperforming the World Equity Index is to invest long term, in a concentrated, high conviction and low fee portfolio and transact only when necessary.

TM Cerno Global Leaders invests in global companies with sustainable competitive advantages delivering above average returns. Its target is to deliver performance in excess of MSCI World Total Return (GBP) 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.

For more information on TM Cerno Global Leaders please contact Tom Milnes.

About Cerno Capital

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Please ensure you read the Key Investor Information Document (KIID) for the fund selected before making an investment decision. The documents contain important information including risk factors and details of charges.

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TM Cerno Global Leaders Fund Manager

James Spence
James SpenceLead Fund Manager
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.

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Latest Investment Letter by James Spence

The writer first visited Italy in 1983 and experienced the ochre strade of Florence on a tight budget. Caffè was taken al banco non al tavolo. A fruit cake from home served for lunch so an evening meal could be taken in a restaurant. It did no harm and sparked a deep affection for the place that will last this life.

Italy is an effervescent place to visit but a deeply frustrating place to be a national of. It took many years and the wry books of Tim Parks to realise this. With more acquaintanceships, especially that of young Italians, the disfunction of the place became apparent. The narrowness of opportunity is a shock when compared to, for example, the UK. The most recent plot of youth unemployment was 31.7%, the second worst in the G20.

Italians themselves will often point out that they have not been a country for long and in many respects the place still aligns to stati della città (city states). The preminent of which being Rome, where dark arts are practiced.

Given the institutional stasis, ossified professional cabals and general sense that politics is a game for the rich played by the rich, it is perhaps no surprise that radicalism has broken into the open. In this febrile environment, the hard left can forge pacts with the hard right (italics supplied by Channel 4 News which favours hard for all forms of politics it deems unacceptable).

As in America, the system is being tested to within an inch of its life: in Italy’s case a President using what powers as he may to forestall financial dislocation.

Old hands of the European bond markets will remember the sunlit days of the 1990s when money could be made simply by buying Italian bonds and watch their yields fall toward German bonds (bunds). It was called “convergence” and some firms made their reputations and a good deal of easy money on it.

Well, we have converged. All the way to the 58 point spread above bunds that was recorded in March 2015. One suspects that the Lutherans of Frankfurt have long rued the tight pricing of Mediterranean credit and would place a true price for Italy in the 300+ basis point range. And so they might judge Spain, Greece, Portugal and the rest.

No doubt many fine things have been built or funded with lower yields but none of those fine things are in the bellies of the electorate who are fed up, although fed up about a disparate array of issues. Many of these political choices seem to line up as a choice between chaos and continuity with continuity holding its own only in Germany.

European debt markets present the most terrifying feedback loop and ultimately a check on political cavaliers. The imperfect logic of the EU needs to be tested every summer or two and possibly Italy is this summer’s story as Greece’s was in 2015.

Italy is a large economy but one whose membership of a currency bloc (the “German cage”) allows it to imagine its beauty against a beast. The UK is a large economy however not large enough, sadly, to dispel the risk of becoming a side show should Italian disorder engulf the commissions in Brussels.

The plot rolls on, not with any meaningful consequence for Cerno portfolios, though, as nothing we hold is based on a spread in relation to anything else. Investment jargon that pertains to spreads is dangerous as what is being described is something in relation to something else. These are relative relationships. The problem with relative relationships in investment is that one is derivative of the other. If the foundation stone is not sound, nothing around it will be either. The truth of this type of investing – the province of most macro strategies – is that short term momentum is being jockeyed.

We hold a different view. Far from thinking that volatility in prices should be thwarted, there simply has not been enough of it to remind participants of the risks. We favour differentiation in asset pricing, not correlation.

More meat on the bone for the active investor.

By |June 1st, 2018|

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TM Cerno Global Leaders Key Contacts

Tom Milnes
Tom Milnes

Business Development Director
[email protected]
020 7036 4126

Olivia Martin
Olivia Martin

Client Relations and Business Development
[email protected]
020 7036 4123

FAQs on the Cerno Global Leaders Fund

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 sword of Damocles over the thin slivers of equity that supports it.

The idea of a sustainable business is also interwoven into our investment process; how does the company treat its stakeholders, is adequate capital being invested to support the economic moat, how aligned are management, are cash returns in excess of the cost of capital, is leverage employed conservatively, to name a few. Used prudently, leverage can support growth and optimise the cost of capital for a given business. Used imprudently, it results in a front-loading of returns and increasing vulnerability to future shocks. A decade of easy money, unspectacular economic prospects and rising corporate margins have nudged many CFOs, particularly in the US, down the path of least resistance, that of financial engineering.

The results are stark: US corporate leverage has doubled when compared to 2007. Excluding banks, net debt to EBITDA ratios now stand at 1.8x, just below the 2x above which issuers tend to be viewed as sub-investment grade. The median leverage of the 27 Global Leaders is just 0.6x.

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

A good proxy to mitigate downside risk is the avoidance of fragility. As the essayist and fund manager Nassim Taleb* proffered, “it is far easier to figure out if something is fragile than to predict the occurrence of an event that may harm it. Fragility can be measured; risk is not measurable”.

Who can say how fast rates will have to rise to temper the heat of the US economy? It may be that overleveraged corporates will find the space to gradually paydown debt before any recession. This is possible but by no means probable. Indeed, as the cost of capital rises, corporate indebtedness is likely to be source of increasing angst for investors, in our view. As Mr Buffet famously quipped in 2008, “you only learn who has been swimming naked when the tide goes out”.

*Antifragile: Things that Gain from Disorder (2012)

Fund Facts

Fund Size £64.5mn
Fund Launch Date 01/11/17
Legal Structure UK OEIC (UCITS)
Dealing Frequency Daily
Suitable for SIPPs/ISAs/JISAs Yes

Available Share Classes

Name Class A Class B
Cerno Capital AMC 0.65% 0.55%
Investment Minimums £5,000 £10mn

Risk Data

Net Equity Exposure*
Gross Equity Exposure*
Short Equity Exposure*
Long Equity Exposure*
Best Month*
Worst Month*
Sharpe Ratio
Calmar Ratio
Upside Capture*
Downside Capture*
Maximum Drawdown*
Annualised Volatility*
Beta (vs World Equity Index)*

Fund Codes

ISIN SEDOL Bloomberg
A Acc GB00BF00QK62 BF00QK6 TMCGLAA LN
A Inc GB00BF00QJ57 BF00QJ5 TMCGLAI LN
B Acc GB00BF00QM86 BF00QM8 TMCGLBA LN
B Inc GB00BF00QL79 BF00QL7 TMCGLBI LN

Fund & Risk Rating

ARC 2015 3D Awarded

DISCLAIMER

CERNO CAPITAL’s website contains certain information about its approach to providing investment management services but does not provide specific investment advice and is presented for informational purposes only. It does not represent that the services described on the site are suitable for any specific investor. You are advised not to rely on any information contained in this site in the process of making a fully informed investment decision. Instead, you are urged to base investment decisions upon a thorough investigation and to obtain all necessary professional advice.

The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution, publication or use would be contrary to local law or regulation or in which CERNO CAPITAL does not hold any necessary registration or license. Individuals or legal entities in respect of whom such prohibitions apply, whether on grounds of their nationality, their place of residence or on other grounds, must not access or use this website.

 

DISCLAIMER

CERNO CAPITAL’s website contains certain information about its approach to providing investment management services but does not provide specific investment advice and is presented for informational purposes only. It does not represent that the services described on the site are suitable for any specific investor. You are advised not to rely on any information contained in this site in the process of making a fully informed investment decision. Instead, you are urged to base investment decisions upon a thorough investigation and to obtain all necessary professional advice.

The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution, publication or use would be contrary to local law or regulation or in which CERNO CAPITAL does not hold any necessary registration or license. Individuals or legal entities in respect of whom such prohibitions apply, whether on grounds of their nationality, their place of residence or on other grounds, must not access or use this website.

Persons who wish to access this section of the website are required by CERNO CAPITAL to inform themselves of the legal or regulatory restrictions which may affect their eligibility to access the website or subscribe for units in the funds described herein.

The information on this website is only intended to be viewed by persons who fall outside the scope of laws that seek to regulate financial promotions in their country of residence. Examples of such persons may be governmental agencies, persons sufficiently experienced in investment business to appreciate the risks associated with investment services promoted on this site, large corporations and trusts and high net worth individuals. These examples are not country specific, may not be relevant to your country of residence and are provided for illustration purposes only. If you are uncertain about your position under the laws of your country of residence then you should seek clarification by obtaining legal advice from a lawyer practising in your country of residence before accessing our site.

In particular, CERNO CAPITAL is not registered as an investment adviser with the Securities and Exchange Commission and therefore this website is neither directed at nor intended for use by any person or entity in the United States.

Any past performance data contained on this website is no indication of future performance and nothing on this website should be interpreted to state or imply otherwise. The value of investments may fall as well as rise and investors may not get back the full amount invested. In addition, the information and materials herein shall not constitute an offer or solicitation, or an offer to sell, shares of any of the funds or any advisory or management service in any jurisdiction.

Additionally, the information on this website is provided “as is” and “as available”. CERNO CAPITAL is under no obligation to update the information to reflect changes after the publication date. It is presented without warranty of any kind, either express or implied, including without limitation of any warranties concerning the availability, reliability, accuracy, completeness, timeliness or sequencing of the site or the content, products or services available on or via the website. Also, the information offered does not carry a guarantee of accuracy, completeness or timeliness for any particular purpose and neither expressly or impliedly carries warranties or implied warranties regarding its merchantability and fitness for a particular purpose.

CERNO CAPITAL reserves the right to change the information displayed on the website or this legal notice at any time. They will not be responsible for any loss or damage that could result from interception by third parties of any information available on this website. In no event shall CERNO CAPITAL be liable for any indirect, incidental, special, punitive or consequential damages (including, without limitation, damages for loss of data, business or profits) arising out of or in connection with this legal notice, the website, the inability to use the site or any products, services or content purchased, obtained or stored in or from the site, whether based on contract, tort, strict liability or otherwise, even if CERNO CAPITAL has been advised of the possibility of such damages, and notwithstanding the failure of the essential purpose of any remedy without limiting the foregoing provisions of this paragraph, these limitations also apply to any third party claims against you.

This Legal Notice is governed by English Law and the English courts shall have exclusive jurisdiction over any matter arising out of this Legal Notice or from your accessing of the website. It is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction.

The information contained herein does not constitute an offer to sell or the solicitation of any offer to buy or sell securities and or any derivatives and may not be reproduced, further distributed or published by any recipient without prior permission from CERNO CAPITAL.

This website has been published by CERNO CAPITAL which is authorised and regulated in the UK by the Financial Conduct Authority.

CERNO CAPITAL is a registered limited liability partnership in England and Wales (Incorporation Number OC326579), registered office: 34 Sackville Street, London, W1S 3ED.

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