The final quarter of 2023 saw world equity markets rebound strongly and returns on the Coleman Street Funds were no exception. Throughout the year, the narrative around the ‘not too hot, not too cold’ economic soft landing has gained traction and investors have placed the previously oven-ready recession back onto the shelf and begun to celebrate the apparently expert guidance of the US Federal Reserve and other central banks.
In our commentary this year we have argued that we felt sentiment was too pessimistic. We felt that economic resilience was high amongst both individuals and corporates, year-on-year effects would diminish headline inflation, at least temporarily, and volatility in markets would provide opportunities. In the face of more positive sentiment today, we think it is worth reminding ourselves that inflation remains an ever-present threat with long-term tailwinds and that, according to more than 500 years of capitalism at least, recession can only ever be delayed, never avoided.
In a year where the pendulum of sentiment appears to have swung from one end to the other, we think of ourselves as having invested in a permanent state of fearful optimism. This outlook is reflected in holdings within the funds where we have not been afraid to hold cyclical businesses that rely on at least somewhat discretionary spending, but we have been keen to make sure that this was always accompanied by strong margins, positive cashflow and a fortress-like balance sheet. Some of these businesses, such as Auto Trader (+40%) and Sage (+57%), have seen their attractive characteristics and continued progress rewarded with a strong share price performance in 2023. Others such as Hargreaves Lansdown (-14%) and Genus (-27%) have not.
We hope for a continuation of the recent market strength, but we are wary of the myriad and unknown risks that may await. So, our outlook is unchanged, we remain fearfully optimistic.
The value of investments and the income from them can go down as Past performance is not a reliable guide to future returns. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
