Arnott Opportunities (Cayman) Fund commentary for the month ended October 31, 2023.
Dear Jacob,
The fund returned negative -2.72% for the month of October 2023. Net exposure averaged 40% long, while gross averaged 98%. This brings our calendar year return to positive 1.43% and since inception return to positive 20.40% p.a. net of fees.
Q3 2023 hedge fund letters, conferences and more
The key detractors to performance were in our Energy and UK themes. In addition to this, we saw an unusually large ratio of loses to winners for the month. Meaning, it was a statistically unusually poor month for us. We have recently reduced some of our key short themes which have fallen significantly, including Luxury names and Battery makers.
Global equity markets face both a mix of tailwinds and headwinds. Which in turn are revealing a number of long and short thematic opportunities.
Peak interest rates, falling inflation, full employment and continued fiscal spending will support corporate profits of some sectors. Particularly those companies with exposure to onshoring and friend shoring. We are seeing some early signs of productivity growth and there are high hopes for this to continue with the advancement and rollout of AI more broadly throughout corporates globally.
On the other side, many companies are facing a number of headwinds. Higher rates are yet to take effect for many businesses. Costs are higher, so, while inflation may continue to fall, many industries face materially higher costs than only a few years ago. Where they are unable to pass this through this is real risk of margin squeeze. While employment is full there are some early signs of loosening in the employment. Should this continue, there will be some knock-on effects. There is some evidence of labour hoarding. This trend may ease. A looser labour market will lead to changing consumer spending habits.
Japan remains the last anchor for global duration. With a new Governor at the BOJ, 20+ year lows in the Yen and the likely end of the deflation era upon us, the end of NIRP, ZIRP and YCC in Japan cannot be underestimated. For a period of greater than 20 years, Japan has been the liquidity backstop for Western assets. What happens when Japanese investors can earn a yield at home? Japan is a growing area of research and portfolio exposure the us.
Kind Regards,
Kenny Arnott
CIO
Yianni Gertos
Co-CIO
