TM Cerno Select2018-10-18T15:27:48+00:00

TM Cerno Select

TM Cerno Select Fund Information

TM Cerno Select is a global strategy investing across multiple asset classes with an unconstrained approach to asset allocation. The return target is CPI +3%.

We aim to preserve and grow capital through investing in an approved range of investment vehicles, including direct securities, passive funds and specialist active managers.

The fund is domiciled in the UK under the UCITS regime and trades daily at net asset value (NAV). A sister fund, Cerno Unconstrained, follows the same strategy and is domiciled in Ireland, also under the UCITS regime.

For more information on TM Cerno Select please contact Tom Milnes on 020 7036 4126 or at [email protected].

Funds page ink drawing

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

TM Cerno Select Fund Managers

James Spence
James SpenceCo-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.
Fergus Shaw
Fergus ShawCo-Fund Manager
Fergus is a Partner at Cerno Capital and surveys the full range of the firm’s investments on a bottom up basis and is principally engaged in manager and security selection. He began his investment career at Valu-Trac Investment Management in 1995, where he worked in their global equity and asset allocation products. He worked for Russell Investments as a Portfolio Manager of UK equities (2001-2006) and Asian equities (2006-2009). Fergus graduated from Edinburgh University with a BCom (Hons), holds the CFA charter and is a member of the CFA Society of the UK. Fergus is a Director of the Salters’ Management Company.

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Latest Investment Letter by James Spence

The current economic and stock market cycles are unusually long in duration and this leads to obvious questions about what will be the cause of its ending.

There are several oft mentioned candidates: protectionism, a fall in historically high margins, a strong dollar and interest rates or some combination of these factors.

Students of stock market valuation over time are liable to point to how highly valued equities are and this is hard to dispute.

To our minds, the biggest threats to the US stock market lies within the international (non-US) outlook combined with shifts in demand for equities and their valuation.

The valuation observation is notoriously difficult to narrow down in a causal sense and apply to time frames. Current high valuations are a pointer to sub-normal returns over the medium term but not the short term. Specifically, they tell us something, in a probabilistic sense, about how returns will pan out over a seven-year time frame, not a one-year time frame. (This is what our own testing has shown).

Considerations of the net-demand for equities is thinly trampled terrain for the equity market analyst. It is common place in bond circles to speak of such things – they are more readily predictable, especially in the government sphere. For countries have to re-finance their existing stock of debt (the majority of which has known maturities) as well as its budget deficits, items that are forecast with great care.

Seldom is the subject of demand for equities spoken of with any degree of assurance. However good clues lie when the sources of demand are characterised.

Who is the largest buyer of US equities today? The listed companies themselves. Goldman Sachs estimated in 2017 that aggregate share buy backs in the US would reach US$590bn this year. More recent data from Trim Tabs shows that US$436bn was bought back in the second quarter of 2018 alone, suggesting that the full year total could crest US$1tn. The second biggest purchaser of equities are ETFs at an estimated US$400bn for 2018. Foreign investor activity net of sales of US active equity funds are expected to sum to a meagre US$25bn.

What can be seen at a glance is that the largest segment of demand lies in the hands of company buy-back schemes and ETFs.

Our view of these groups is that they are essentially blind in the sense of undiscriminating. ETF buying is a consequence of inflows, which itself is a function of a) the general switch from active to passive and b) the market continuing to rise. The second factor at least partially drives the first. Active fund managers are trained to take punishment from their clients in the event of poor performance. Investing in ETFs allows less room for blame apportion – a financial intermediary may be on hand for an ear bashing but no comfort can be had from a inky-dink web site or self-directed investment.

Share buy-backs have been a feature in a larger study we are doing on US corporate indebtedness and this study is yielding notable conclusions.

The phenomenon of buy-backs is not by any means new – it is, though, reaching its apotheosis. The underlying rationale and practices have morphed overtime. The “classical model”, if we can call it this, for buy-backs suggests that company boards face decisions as to whether to expand via investment, buy assets or competitors and – if no such profitable avenues exist – consider buying back their shares if those shares are undervalued or at least not overvalued. For all we know, this example of decision tree modelling is still at work in some boardrooms.

The “modern model” is more pragmatic and is driven by the tax efficiency of returning capital to shareholders via buy-backs as against the “tax inefficient” method of paying dividends that would be subject to income taxes. By reducing the share count, earnings per share rises and continuing shareholders own proportionately more of a company (as long as uncancelled bought back shares are ignored). Not surprisingly, CEOs with pockets stuffed with share options, are keen on this too.

Warren Buffet was, until recently, intriguingly ambivalent on the subject. He is on record for being in favour of buy-backs in Berkshire Hathaway held companies but restricted Berkshire in buying back its own shares. He loosened his belt on the subject just two months ago by permitting buybacks in Berkshire when the board “believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.” Prior to this, his board was restricted to buying back shares only when the stock price were no more than 20% premium to book value.

In one fell swoop, Buffet has migrated from the classical model to the modern. With cash of US$64bn in the holding company and debt to equity of just 26%, he may have a lot of buying to do. The average debt to equity of the non-financial universe within the S&P500 is 130%. With a market cap of US$523bn and a book value of US$358bn, Berkshire’s first repurchase will signal his and Munger’s thoughts about where intrinsic value may lie. Berkshire’s share price will doubtless rise on the news.

If you cast your eyes over the balance sheets and cash flow statements of a representative number of large US listed companies it becomes patently clear that the buy-back trend has become a reflexive action of US CFOs – not just deploying all surplus cash but adding leverage to do so. Triple B bonds entail a financing cost of 4% and the average S&P constituent has a Return on Equity (RoE) of 12% so the very action of buying back adds value up until the leverage becomes dangerous.

Even before that point comes, any deterioration in US cash flows will halt the tide )as corporate cash flows are fairly fully committed) and we have the prospect of a buyers’ strike were ETFs to go into net redemption mode, as they would be likely to do.

Which brings us back to the cause of that deterioration.

The problem with the winner-takes-all approach to trade that has roosted in White House policy is that the blow-back effects are considerable and not well understood by the incumbent of the White House. 46% of sales of the S&P500 are non-US and interruption of trade flows via tit-for-tat tariffs weakens the global growth picture.

To our minds, it is waning global demand which presents the greatest threat, exacerbated by a strong dollar, weakening of the Chinese economy and trade friction. These are hardly imaginary events. The US stock-market is a loop and when that loop gets broken we should expect a nasty bear market.

Within the multi-asset portfolios in our charge, we have responded to these risks by moderating equity allocations (cycle peak of 72% and now at 50%), adding generic put option protection on broad equity indices and US Treasuries and maintaining balance sheet emphasis within held companies. Debt-equity ratios within Global Leaders constituents are a more moderate 58% on average.

By |September 10th, 2018|

TM Cerno Select DDQ

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TM Cerno Select 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

NAV

£0
TM Cerno Select Fund B Acc
£0
TM Cerno Select Fund C Acc

Fund Facts

Fund Size £87.7mn
Fund Launch Date 04/09/13
Legal Structure UK OEIC (UCITS)
Dealing Frequency Daily
Suitable for SIPPs/ISAs/JISAs Yes

Available Share Classes

Name B Number C Number
Ongoing Charges 1.43% 1.18%
Cerno Capital AMC 1.00% 0.75%
Allocated Managers’ Fees 0.20% 0.20%
Other Fees (incl. running costs) 0.23% 0.23%
Investment Minimums £5,000 £1mn

Risk Data

Net Equity Exposure* 49.7%
Gross Equity Exposure* 49.7%
Short Equity Exposure* 0%
Long Equity Exposure* 49.7%
Best Month* 4.1%
Worst Month* -3.8%
Sharpe Ratio 0.7
Calmar Ratio 0.8
Upside Capture* 50.1%
Downside Capture* 57.5%
Maximum Drawdown* -7.7%
Annualised Volatility* 6.1%
Beta (vs World Equity Index)* 0.8

Fund Codes

ISIN SEDOL Bloomberg
B GB00BCZXTM29 BCZXTM2 TMCESBA
C GB00BCZXTP59 BCZXTP5 TMCESCA

Fund & Risk Ratings

Dynamic Planner 5 Profiled

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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