Interim Management Statement

RNS Number : 5799W

BACIT Limited

29 January 2013

 



BACIT Limited

Interim Management Statement - 26 October 2012 to date

BACIT Limited ("BACIT") is a closed-ended investment company, registered and incorporated in Guernsey (registration number 55514). BACIT was admitted to trading on the London Stock Exchange's main market for listed securities on 26 October 2012. Shares in BACIT trade under the ticker BACT.L.

BACIT's investment objective is to deliver superior returns from investments in leading long-only and alternative investment funds across multiple asset classes. BACIT only invests where the relevant investment manager provides investment capacity on a ''gross return'' basis, meaning that BACIT and its subsidiaries (the "Group") do not bear the impact of management or performance fees on its investments.

This statement is released to comply with Disclosure and Transparency Rule 4.3 of the Financial Services Authority, and covers the period from the 26 October 2012, to the date of this announcement. 

Review of the period

BACIT listed on 26^th October 2012, and between that date and the year end, net asset value ("NAV") increased by 2.90%. The FTSE All-Share rose 1.93% during that time, and the HFRI Fund of Funds Strategic Index, by 1.89%[i].

By early November 2012 we had invested over 70% of BACIT's NAV. By early January 2013 this number has risen to almost 80%, across 25 underlying funds and 18 managers. During the first quarter of 2013 we have invested in Chenavari's European Real Estate Strategy, and will make two strategic investments with the initial drawdowns from M&G Infracapital II and Permira V.

In addition, we have broadened our search for managers to incorporate investments beyond those in BACIT's listing prospectus. We continue to expect BACIT will be fully invested in the second quarter of 2013.  At 31 December 2012 the full list of holdings was as follows:

	% of NAV
Capital Gearing Portfolio Dollar Fund	7.6%
Maga Smaller Companies Fund	6.0%
Majedie Asset UK Equity	5.9%
BlackRock UK Special Situations Fund	4.9%
AIMS Diversified Fund	4.2%
Chenavari Bank Regulatory Capital Strategy	3.7%
Polygon Mining Fund	3.6%
SW Mitchell European Fund	3.5%
Cumulus Energy Fund	3.3%
Polar Capital Japan Large Cap Fund	3.2%
The SFP Value Realization Fund	3.2%
Polygon European Equity Opportunity Fund	3.1%
Polygon Convertible Opportunity Fund	3.0%
WyeTree Yield Distribution Fund	2.9%
Tower Fund	2.9%
Thyra Global Technology Fund	2.8%
Sinfonietta Fund	2.6%
Russian Prosperity Fund	2.5%
BlackRock World Resources Income Fund	1.9%
Baker Steel Genus Dynamic Gold	1.7%
Prosperity Russia Domestic Fund	1.5%
Henderson Agricultural Fund	1.4%
Optimal Australia Absolute Fund	1.4%
WyeTree RRETRO	1.0%
Total	77.7%

The fund's long bias has meant that the current bull market in equity and credit has been favourable. We remain keen to invest with managers who are noted stock-pickers, but also those with a history of capital preservation, through disciplined risk management and a talent for constructing asymmetric trades. Significant contributions during this quarter came from positioning on the back of Japanese QE, the subsequent devaluation of the Yen against the US$ and rise in Japanese equity indices, and for our energy manager, dislocations in his market. .

We remain cautious of Central Bank policy, the continuing competitive devaluations of currencies, and the likely ultimate outcome of visible inflation. Our single investment into liquid credit, be it government or corporate issued, is 7.6% of NAV into index-linked US Treasuries. Outside this our credit investments all require, in addition to the pre-requisite analytical skills, specialist knowledge of the market segment. They thus have higher barriers to entry and, we expect, commensurate rewards.

	% of NAV
Equity	22.6%
Equity Hedge	19.3%
Commodity	16.1%
Fixed Income	7.6%
Credit	6.6%
Relative Value	3.0%
Global Macro	2.6%
Cash	22.3%

We expect the fund's current global spread of investments to be representative of the portfolio in future, but within that we will look to overweight exposure to markets which are out of favour and mispriced. Three such markets at 31 December were Japan (6.4% of NAV with two managers), Russia (4.0%, two funds) and South Africa (2.9%, one fund). We expect the opportunity in those markets to be enduring.

	% of Invested Capital
Global	25.6%
Europe ex-UK	24.8%
UK	13.9%
US	13.5%
Asia-Pacific	13.4%
Emerging	8.8%

Per the table below, 47.2% of NAV is currently invested, un-hedged, into US$ denominated currency classes.

	% of NAV
UK £	49.1%
US $ (unhedged)	47.2%
€ (hedged back into £)	3.7%

We viewed this US$ exposure as a volatility dampener, a function that it did indeed perform through to the year-end denting BACIT's performance, but as the dollar's inverse correlation to risk assets has broken down this month we have moved into a monitoring mode on this front, and will advise you if our hedging policy on US$ denominated investments changes. Likewise, we will inform you if we lift the sterling hedges on the Euro denominated share classes BACIT has invested into.  

We will continue to endeavour to invest with the blue chip names of today and tomorrow.  We are proactively approaching new prospects, and are pleased to report that we are now being contacted regularly by a variety of fund managers who would like to participate in BACIT, and we are currently in discussion with a number of them. BACIT's success is entirely dependent on the generosity and ability of the underlying managers, and we are supremely grateful to them all.

BACIT Management, January 2013

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[i] The performance number for HFRIFOFS relates to November and December 2012, i.e. does not commence on 26 October 2012

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