DirectorsTalk Interviews caught up with Alan Bartlett, Co-Portfolio Manager of Global Opportunities Trust plc (LON:GOT) to discuss 2024 performance and positioning for 2025.
Performance of the Global Opportunities Trust plc in 2024: Review and analysis
Q: How did the Global Opportunities Trust perform in 2024?
A: Returns in 2024 are a little disappointing. We’re pleased to have generated an absolute return, but we would have been happier with a little bit more performance.
Coming into 2024, the environment was very challenging to us, because for the last three, four years or so, the Global Opportunities Trust has been positioned in a pretty defensive manner. But coming into 2024, you could see an environment in which sentiment could support stronger returns on the equity market. Base effects meant that inflation was going to be falling, and so the narrative would build for central banks to be able to reduce interest rates, and that would support asset prices, etc.
In the run-up to the US presidential election, there were a lot of things combining to make it look like asset prices could go up, but against the backdrop of significant macro issues and concerns that we had, and specifically in the US around the size of the national debt and the cost of financing it. Much in the same way as if you buy a house, the cost of the house isn’t necessarily the thing that’s critical, as long as the bank’s willing to lend you lots of money for mortgage. The thing that really matters is how much your mortgage costs. It’s the same for governments, really.
So, US national debt has been rising for the last few years and is significant, but the problem that has really been rising is the cost of servicing the national debt. We could see that coming in the back end of 2024 and into 2025 and becoming a really significant issue, so a negative but the positive being falling interest rates and the obvious human desire for the world to be okay and everyone to be positive and equity markets to go up.
Q: What key portfolio adjustments were made in early 2024?
A: We added some more cyclical risk to the Global Opportunities Trust at the beginning of 2024. We wanted to add more, to be honest, but we were struggling to find things that were cheap enough. We found a little pocket of things that we thought were attractively priced on a longer-term basis and that we could stomach, if you like, on a macro perspective in the shorter term, particularly in the UK, so UK mid-cap value stocks.
Q: Why did the Trust invest in Alibaba and UK mid-cap value stocks?
A: We bought Alibaba in China because it had just gone down an awful lot and we thought it had a lot of option value, and from a portfolio perspective, it’s very valuable to have something in a portfolio that can go up a lot when other things are struggling. We saw some potential for that with China having just a different economic and market cycle to other markets, and by luck or judgement, that worked really well over the last year or so.
Q: Why did the Trust exit large-cap Japanese equities?
A: We exited the larger-cap Japanese equity stocks that we held directly in the portfolio in around April 2024. They performed very well, Japan was a sort of flavour of the day at the time, and weak yen meant that it supported the earnings of exporters in Japan. As Japan started to outperform America, flows started to be significant into Japan, large caps outperformed a lot, and our problem was we just got to valuations that were just too expensive.
So, we rotated out of larger caps into a smaller cap, more domestically focused exposure with a company called Asset Value Investors that we invested in a fund that they have that is a Japanese small cap fund. Goodhart Partners actually is an affiliate of Asset Value Investors. We own a stake in that business and I’m on the board of that business so it’s not really third party to the extent that we have very unusually detailed understanding of the investment process and the way they manage money.
Q: How did the switch to small-cap Japanese equities perform?
A: That switch from large-cap exporters towards domestic small caps worked very well over the last year. Asset Value Investors’ performance has been fantastic, they’re more of an actively engaged investor and it’s more of a play on corporate governance reform in Japan, which is a theme that we are very positive on structurally for the long term.
Q: What were some later 2024 investments and why were they made?
A: We’ve rolled through to the summer, in advance of the US election, we found a few more stocks that we frankly could stomach buying. Breedon, the UK aggregates business, being one example so we added a little bit more market risk, a little bit more discounted UK equity risk to the portfolio. But not enough, frankly, given how strong broader equity market returns were.
Q: Why was there limited market risk taken despite rising markets?
A: The challenge is that we’re only going to buy things if we find investment opportunities that we really believe in. We don’t think that forcing yourself to take market risk just because you think markets might go up is a terribly good idea. It’s not fundamental and robust enough from our perspective. So, despite sort of grubbing around the market, trying to find things that we liked, we just couldn’t find enough of them so the net of all that was a positive but modest return over the year.
Q: How did the Trust end 2024 in terms of adjustments?
A: Towards the back end of the year, we rotated out of our short exposure in the portfolio that had been a bit of a hedge on markets and right before the year end, we added two European mid-cap value stocks. That was another seam, if you like, of attractive investment opportunities that we found. The challenge there, was that whilst we see significant long-term upside to those stocks, they are quite cyclical in the shorter term. So, from a portfolio perspective, we didn’t want to add too much to that because it does bring downside risk to the portfolio, but we thought some exposure was justified by the upside potential.
Frankly, if Sandy and I are wrong on some of the bigger picture things, it would provide more underlying market exposure and be a more potential absolute return for the strategy in environments where the macro ended up being more benign than we thought.
Investing through the early months of 2025: Portfolio activity and outlook
Q: What was the 2025 market environment like and how did it affect the Trust?
A: I think that market performance in 2025 so far somewhat vindicates the positioning that we had in 2024. Performance, certainly relative to equity markets this year, has been good, we’ve managed to keep the low volatility and generate an absolute return against the backdrop in which the US equity market has been very volatile and fallen significantly at times.
Clearly, the euphoria markets around Trump have petered out pretty quickly and as the narrative turned to tariffs, etc. I think that highlights the problem in some ways of trying to be opportunistic in markets. Agile doesn’t mean high turnover and trying to outperform in every single market environment, if you like, it just means being able to adapt significantly over time.
I think the reality is that if we’d pushed up market exposure in 2024, we would have done a lot worse in 2025 so far. Hopefully, the positioning that we’ve got that didn’t help performance particularly in 2024, is going to really help on a forward-looking basis.
Q: How has the defence theme contributed to the portfolio?
A: So, we added two European mid-caps. Outside of that, we’ve trimmed a few exposures. If you think about the portfolio themes, defence has worked very well, it’s an exposure that we’ve had in the Global Opportunities Trust for a long time, for many years, but it really became fashionable this year for obviously awful reasons, and performance has been very strong.
What’s been really useful about the defence exposure in the last few years is the asymmetry of return. I think when you identify an opportunity where change is really driving the investment idea, that’s how you create asymmetry in a portfolio. So, in simple terms, where markets were selling off over the last few years, defence stocks haven’t really sold off that much, they’ve been relatively defensive but in rising markets, they’ve caught quite a lot of the upside. So, a wonderful sort of asymmetric return profile to achieve in a portfolio.
I think now that the theme around defence is well understood and focused on by other people, that asymmetry goes away somewhat. So, so the challenge is that the stocks are still very attractive on a longer-term basis but that diversification within the portfolio is less attractive than it was. So how we calibrate that in the portfolio on an ongoing basis is one challenge that we’re wrestling with at the moment.
Q: What is the role of ‘resilient’ stocks in the portfolio?
A: The other, frankly, is that the exposure we call resilient has just done really well. The resilient stocks in the portfolio, frankly, they’re just boring, or rather we hope they’re boring, these are stocks that are 2-3% dividend yields with 3-5% earnings growth. Hopefully, we catch some idiosyncratic return from picking the right cycles in these businesses, but the idea really is that they can compound at 5/6/7% per annum over the long term, pretty much regardless of what happens in the broader market. We had about four years’ worth of that in three months this year, because the market started to worry about things around Trump, etc., and many of those frankly boring stocks were up significant double-digit amounts.
We sold Tesco because it performed very well and was no longer cheap enough for us, with uncharacteristically good timing, courtesy of Sandy, given that it had an earnings miss shortly thereafter, and the share price went down significantly. We also sold Imperial Brands, despite the fact it was still cheap actually but it’s not something that really deserves a premium multiple because ultimately, it’s not going to grow over time, and so we moved on.
Q: What are the current challenges in finding new resilient stocks?
A: The challenge now for the portfolio is that we’re not finding attractively priced, resilient, boring stocks, and so we’ve recycled some of the capital into the more cyclically exposed, but very attractively priced on a long-term basis, stocks in Europe. We’re trying to be very careful about the overall weighting because we remain pretty bearish in their longer-term perspective around the macro environment and broader valuations. That’s the trade-off, if you like, that we’re trying to manage in the portfolio.
Q: What are the three key challenges for investors today according to the Trust?
A: In simple terms, I think there are three elements to challenge today.
The first is obvious relative value. If you look at things like large caps versus small caps, developed markets against emerging markets, US equity versus non-US equity, on a historic basis, there are very significant relative value opportunities there. The Global Opportunities Trust’s strategy is absolute return-oriented, so the relative return has to be put in context with what the absolute opportunity is.
The second component is the absolute return opportunity and over the last six months or so, we’ve significantly enhanced the investment resources that we have at Goodhart. We have more firepower on stock picking, and we are finding more stocks today that have significant long-term upside to them, which is exciting.
Sandy wrote in his book ‘The End of the Everything Bubble’ published in 2021, and the good news is we don’t think that we’re in the everything bubble anymore. Broad markets are still very expensive, but not all markets. Fixed income markets have corrected significantly, and we are finding more individual securities around the world that make a lot of sense from a longer-term valuation perspective. Most of those need a relatively benign macro environment for the value to really come through and so that macro component has to be weighed against the longer-term upside that we see in individual stocks.
In simple terms, that’s the challenge today. How do we balance attractive relative value, very attractive absolute upside over the long-term, but with shorter-term macro headwinds that can significantly impact returns over the shorter term?
Q: How has the Trust adjusted its portfolio weightings recently?
A: The portfolio at the moment is about 64% invested, so roughly two-thirds invested, one-third in cash and money market funds so there’s plenty of dry powder to take advantage of weakness in markets. We’ve also got significant exposure to stocks that we think can go up a lot over the long term.
Q: What is the Trust’s strategy regarding correlation with broader equity markets?
A: The correlation of the strategy to equity markets over the period since the investment policy was changed towards the back end of 2021 has been very low. Actually, we’ve had negative correlation with the broad equity market over that time period. I think it’s important to note that that isn’t going to be the objective forever.
We’ve been managing the strategy to have low absolute risk deliberately for the last few years so the fact that we’ve had very low correlation to equity markets is a natural by-product of doing that successfully if you like. In simple terms, we prefer to be correlated with markets when they go up and not correlated with them when they go down.
Clearly, that’s not an easy trick to pull off, and certainly not with any great precision but I think it’s important to note that the low volatility and correlation of the strategy with equity markets won’t be a permanent feature of the strategy. We will flex the exposure and actually today, the market exposure of the Global Opportunities Trust strategy is a bit more than it has been over the last few years. That’s simply a function of the fact that we’re getting more individual stock ideas that make a lot of sense from a longer-term return perspective, but the overall positioning of the strategy remains very defensive.
We would think the downside beta of the portfolio is in the 0.2 to 0.5 range so if market fell 20% and we were down 5, that would be a good result for the way that the strategy is positioned at the moment. We are greedy, so we’d like to do better than that but intellectually, that would be a decent result for how the portfolio is positioned at the moment. That’s worse, if you like, than we did in 2022, where we had a significant absolute return in a falling market. The quid pro quo, if you like, for that is that we think the strategy is better positioned in other environments where markets are more positive and longer-term, we’re fairly confident in the underlying stocks that are in the portfolio.
An investment team built for a new and different environment.
Q: How is the investment team evolving to support Agile Investing?
A: I think a really interesting development in the team that supports the Global Opportunities Trust, actually, is that Goodhart has been able to bring in some fantastic investors that complement Sandy and myself. So, we now have a nine-person global equity team that has been structured very much with the idea of Agile Investing at the forefront of our minds. We have an unusual investment capability because we have a team of people that have very different approaches to investing. Often boutiques tend to have one way of investing, value investing, growth investing, quality investing, and the essence of agility, if you like, is to have the flexibility to adapt to different market environments and different types of investment opportunity.
Sandy and I have our own biases, we have the things that we’re comfortable with and things that we struggle a bit more with so it’s wonderful to have been able to attract some people that have skill sets that are very complementary and expertise in areas where we just don’t have the same capabilities. And to find some people who believe in the vision, if you like, for running money in a more agile, more flexible, longer-term way.
Q: Who are some of the key new members of the investment team?
A: So, we’ve brought in Russell Champion, for example, and Andrew Heap, who are both growth specialists. Russell has a particularly strong understanding of technology, artificial intelligence, and a very clear view of the business models that are going to work for the next 10 years in that space. It’s an area that Sandy and I have been enormously interested in, puzzling over, speaking to lots of people, trying to understand the business models. Sandy being Sandy is actually trying to understand the code.
The truth is that having an investor in the team that really understands that investment universe and the opportunities is fantastic, and being able to trade off those investment opportunities against the other things that we’ve got in the portfolio improves risk-adjusted performance potentially, but it creates a very rich debate within the team.
Another person that we’ve brought into the team, James Sym, I think is going to have a particular focus on supporting the Global Opportunities Trust alongside myself. He joined us from River Global, he’s a European mid-cap, contrarian-y, value, business-cycle-type investor, and speaks the same language as Sandy and I. He has more of a focus on meeting company management, he really likes to look at company management in the whites of the eyes and try and get into the detail. Sandy and I are a bit less about meeting company management, a little bit more about thinking around the context within which companies operate. James is right in there, beating up on management, trying to understand what’s changing, trying to get a detailed angle on businesses, and that creates a very rich debate within our team on individual stocks and overall portfolio positioning.
We have a number of other people that have joined the team as we try and build out the capability to support Global Opportunities Trust and Goodhart’s wider business. What I really want to do is to introduce a couple of them and try and show you how those kind of ideas get generated and how we talk about them together.
