Looking back on May 2021


Key points

  • The Fund was down 9.96% in May 2021
  • We've had a few months like this in the last five years, but they are (thankfully) rare
  • If you want to beat the market you have to do something different, but sometimes different will perform worse

Our monthly update for May 2021 is now available.

May was a very challenging month. None of the companies the Fund is invested in appeared to be under-performing, but the market took exception to the types of companies we look for. We have seen months like this a few times in the five years we've been running funds with this investment strategy. While we don't seek or welcome months like this we do see this is the corollary of using a strategy that is intentionally different from the market. Most of the time our different is an advantage, but occasionally it hurts you if the market zigs while you zag.

The main narrative in the financial media has been about inflation concerns. We don't find that compelling because other inflation-sensitive assets (for example long-term bonds and gold) haven't moved noticeably.

We have heard one other narrative that is interesting, and is more plausible. The United States has a lot of "defined benefit" superannuation schemes. These schemes have been in financial jeopardy as their members' life expectancy has got much longer than expected when the schemes began - basically the schemes' liabilities far outweigh their invested assets. But the strong returns from growth stocks in the last year has brought those schemes back towards balance. (And, macabrely, at the same time the high Covid death toll in the United States has reduced their liabilities). We hear that many of these schemes have been heavy sellers of growth stocks in the last few months as they look to lock-in this windfall moment where they have their assets and liabilities back in balance. That explanation fits what we're seeing in the market better than the inflation story does.

Our history suggests that the Fund recovers quickly from these unexpectedly bad months. We still have a positive outlook for the immediate future.

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