However, exactly what we had expected for the current half year came true: The massive supply of liquidity to the national economies - and thus also to the financial markets - ensured that the investment form "shares" continued to appear unrivalled! The interest rate level must remain extremely low in the coming years, if a wave of bankruptcies of companies, but also states, is not to be accepted. Based on this assumption, shares will continue to be cheap! Of course always compared to cash, bonds and real estate! We therefore believe it is quite possible that the current bull market will continue in the current half year. Especially in the small- and mid-cap segment, valuations have not yet been exhausted across the board, and there is still a good chance of significant price gains.
The extremely volatile quarter provided very good trading opportunities, which were often taken advantage of. At the moment, this is certainly not the right environment for pure buy-and-hold strategies, especially as we also see a strong sector rotation.
The sharp rise in interest in speculative equities was used to close some positions, such as Zinc of Ireland, Peak Resources, Nelson Resources, Middle Island (the fund continues to hold warrants), Devex, Lucapa Diamonds. The very well performing companies Alliance Aviation and Bellevue Gold were sold for valuation reasons. These measures also increased liquidity within the fund.
In the gold mining sector, positions were repeatedly reduced in order to prevent the weighting of approx. 20% from increasing further. This is a pure risk management measure - we continue to believe in gold as a currency in difficult times! Overall, the fund continues to have a similar sector weighting as in previous years: approx. 50% in commodity equities, approx. 50% in cash and industrial and financial stocks. Within these sectors, the Biotech and Healthcare sectors remain overweight.
Australia has so far withstood the corona virus quite well. The outbreak has been kept very limited - not least by a rigid isolation. Unfortunately, however, this will in all likelihood also mean that the fund manager will not be able to travel to Australia for the first time in 35 years! Unfortunately, zoom conferences are currently having to replace personal contact and company visits!
The Chinese economy, which is recovering strongly at least for the moment, is generating very good demand for commodities! On the other hand, raw material producing companies, some of which have considerable problems to continue their production unchanged, have to face up to this situation. This is especially true for companies operating in South America, but certainly also for companies in North America. As a result, raw material prices are generally at a satisfactory level at the beginning of the third quarter. We believe that Australian raw material producing companies have come through the crisis much better and see good investment opportunities.
We believe that gold should continue to develop positively. This also applies to biotech, pharmaceuticals and healthcare. We also think that the trend towards digitalization will continue. It will also be worth keeping your eyes open for trading opportunities due to the continued unusually high volatility of individual stocks, but also of the market as a whole. We believe that - starting from a relatively high cash position (in the past quarter this was over 10% at times) - opportunities will always arise here.
The Australian dollar is now back at a reasonable level, from which we do not expect any major changes.
However, we are still well prepared to cope with a renewed increase in corona risk (which is one reason why we have a rather high cash ratio), as well as a possible flare-up of the trade conflict. The election in the USA is approaching, and President Trump could be further tempted to show himself as an unpredictable power politician!
Wilhelm Schöder, Schröder Equities GmbH