Setanta Q2 2020 newsletters

Brendan Moran
Tuesday, July 21, 2020

It has been an extraordinary first half to 2020 in so many ways for all of us. Following the fastest 30% decline in history earlier this year, the S&P500 proceeded to record its quickest recovery from a low in almost a century. The market recovery from the trough in Q2 was fostered by the anticipated reopening of economies, swift and unprecedented policy actions and a significant shift in investor psychology, away from fear and towards greed.

Due to the unusual blanket shut-down nature of the recession it was important to reassess the businesses we hold and their prospects in the face of the new specific risks, threats and cash commitments facing them. While short term trading has been affected, we believe permanent damage will be limited. Overall we hold a set of good quality businesses that are well positioned to survive and thrive as they come out the other side of this, many with competitors in weaker positions.

During the quarter, we increased our holdings in companies with strong balance sheets which we believe are well positioned to navigate the challenges facing their industry. We added to companies which we think will benefit from the current crisis and we took advantage of opportunities to acquire quality companies at reasonable valuations though unfortunately such opportunities were rare and short-lived. Some positions were reduced on valuation grounds.

Our investment philosophy centres on identifying quality businesses but crucially being price-conscious, risk averse and long-term oriented. There are many high quality companies that we follow but don’t own, some of which are currently trading at extremely high valuations (over fifty times earnings). If these valuations are raising an eyebrow, other areas of the market are truly eye popping.  Stocks that are favourites with day traders have in some cases risen by hundreds of percent this year, regardless of their business fundamentals

The Setanta fund commentaries discuss, among other subjects, the importance of investing in businesses with strong balance sheets to offer protection against the unexpected, enabling us to first and foremost preserve your capital. We  discuss the heightened risks with many stocks on extreme valuations. We also analyse the principal drivers of fund performance in Q2 2020, and review portfolio activity over the quarter. We hope you find the newsletters interesting – please let me know if you need anything else.