Farewell 2023

Farewell 2023

As the year draws to a close, Whisky has gained around 12.9% while Soda has lost 1%. Naturally, I will publish the final score after New Year’s Eve, but we can conclude that Whisky did well while Soda did not. In Soda, I have been too cautious compared to the FTSE Private Balanced Index, where much of the gain came from holding the Magnificent 7 mega tech stocks, which we didn’t. They make up 10% of the balanced index, and as a group, they doubled. In 2023, investors either owned the Mag 7 or they didn’t. We didn’t.

Source: ByteTree

The FTSE Private Balanced Index, a 60/40, rose by 8.2%, meaning the 9% outperformance we had last year has been given back. It’s a brutal comparison, but in the longer term, we are still comfortably ahead, and pulling ahead once again. What you don’t see in the performance data is how Soda has consistently taken less risk than the market, making it less volatile and more resilient to market shocks, something I believe is essential. Yet, in 2023, the shocks were short-lived.

Year to Date Performance in GBP Total Return

(31st Dec 2022 to 18th Dec 2023)

FTSE 100 TR 5.4%
FTSE Private Balanced TR 8.2%
Mag 7 TR 94.4%
S&P 500 TR 19.8%
S&P Equal Weight TR 7.0%
MSCI Europe TR 12.4%
Japan Nikkei TR 12.1%
MSCI Emerg TR 2.4%
Hang Seng TR -16.5%
Gilts TR 3.1%
Gold 4.2%
Brent Crude Oil -7.8%
Bitcoin 142.2%

Source: Bloomberg

Soda Detractors

The Mag 7 nearly doubled, which is exceptional. That drove the S&P 500, which has 30% exposure to the Mag 7, up by 19.8%. In contrast to the S&P equally weighted index, where they make up just 1.4%, rose a more pedestrian 7%, which is closer to the FTSE 100 (+5.4%).

The three main detractors of Soda’s performance were the defensive assets:

  • Capital Gearing Trust’s (CGT) net asset value (NAV) plus income is flat this year, while the shares have fallen 6%. Exposure was 14.7% of Soda on 3 January 2023, detracting 0.9%.
  • Ruffer Investment Company’s (RICA) NAV plus income was down 8% this year, while the shares have fallen 12.1%. Exposure was 15.6% of Soda on 3 January 2023, detracting 1.9%.
  • The Japanese short-dated bond fund (JT13) fell 12.3%. %. Exposure was 10.1% of Soda on 3 January 2023, detracting 1.2%.

Those three positions, which made up 40% of Soda, cost 3.9% of performance. The yen was held as portfolio protection, which turned out not to be required.

CGT ended with a flat year, which is no crime for a defensive fund, but the shares now trade at a discount, which will close sooner or later. Their portfolio is packed full of value, and I suspect it will get back on track next year. CGT has an outstanding long-term record.

RICA performed very poorly, and as a firm, they must be seething. Last year, they declared their lowest-ever equity exposure while embracing costly portfolio protection. The crash never came, and as a result, the portfolio bled slowly. I would say markets are not without risk, and having true diversification never feels right when you don’t need it, but it remains the right thing to do.

There was also a disappointing Chinese reopening and a soon-forgotten banking crisis that was backstopped by the Federal Reserve. They prevented the systemic collapse by guaranteeing all bank deposits, which was surprising. That prevented a stockmarket fall, and once again, remaining cautious was not rewarded.

Soda Beneficiaries

On the positive side, I believe the most important thing we have done is prepare for next year. The equity book is now in good shape. We have diversified value through the family office stocks and exposure to energy and Latin America.

The family office stocks, and diversified investment companies and trusts, all trade at significant discounts, and good things will happen here. A 50% discount to NAV means doubling when the discount is closed. If the NAV rises in the meantime, powerful gains can be made in these situations. I have embraced them because I find the popular investment themes do not stack up on valuation grounds. These funds do.

Long-term holding AVI Global (AGT) did well, gaining 16.8%, and Temple Bar (TMPL) gained 15.2%. The other holdings were added after the 2022 bear market. Energy may not seem relevant in the short term, but these are cheap stocks paying high yields. They can bide their time. Latin America is mentioned in the postbox, where I am bullish.

I am not thrilled with Soda’s result, but I don’t think I would have done anything differently. Perhaps the Chinese reopening message was contrived, and I could have ignored it, but it seemed plausible at the time. It is strange that China, the engine of global growth for two decades, has stalled, and that is being ignored by today’s stockmarkets.

It seems to be all about liquidity rather than reality, and despite record interest rate hikes, quantitative tightening and a falling US money supply, markets have managed to shrug off the negatives. How long can this last?

A Good Year for Whisky

A much better time was had in the Whisky Portfolio, where I do what I always do, which is to select undervalued, good companies. This year, I made an important change and decided to embrace more international stocks. The UK had a slow year as international investors and domestic pension funds stayed away. Liquidity was poor on these shores, and despite our home market being cheap, there was no cause for a rerating. Embracing overseas stocks allowed us to cast a wider net.

Whisky’s +12.9% is a good result, and if you strip out the comparison with Mag 7, it’s a great result. Moreover, the gap with the market keeps widening in our favour. Whisky has made 152.2% since inception in 2016, which is more than twice the stockmarket (+70.2%).

Source: ByteTree

We had some great success. Melrose (MRO), Marks & Spencer (MKS), and Centrica (CNA) were all members of the FTSE’s top 10 performers this year. We also did well in the FTSE 250 RHI Magnesita (RHIM) and JD Sports (JD). The Poland ETF (SPOL) also stood out. Biotech and AI didn’t work out for us. Precious metals were a drag, but Bitcoin recovered.

In emerging markets, we have Brazil and Pakistan, which is, yet again, very different from the pack. In single stocks, a gang of interesting companies trading at bargain prices. Perhaps there is a bit too much leaning towards energy, but I believe that will work in time. More recently, I have added WH Smith (again) and healthcare stocks that have significantly derated.

It’s all in a good position to carry on next year, where I shall carry on finding undervalued good companies.

The Multi-Asset Investor is issued by ByteTree Asset Management Ltd, an appointed representative of Strata Global which is authorised and regulated by the Financial Conduct Authority. ByteTree Asset Management is a wholly owned subsidiary of CryptoComposite Ltd.


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