For approximately 60% of the Balanced Fund, the first quarter of 2020, particularly March, was the perfect setting to do what it is meant to do – offer downside protection in a volatile market. The equity strategy performed so strongly that it beat the benchmark by over seven percent.
In the post March 23 period, as markets turned bullish again, the strategy continued to hold up relative to the index. This too was in line with its long-term characteristics. When markets were rallying in 2019, we outperformed; and in 2018 when the broad market was down nearly nine percent in US dollar terms, we were up by two and half points. Over time this approach has allowed investors to offset some of the near-term declines, and then continue to participate in growth when the market goes up.
Longevity is another critical part of the strategy. At least three companies have been in the portfolio for over 20 years, and overall the stocks in our equity strategy have already been invested in for a weighted average for equity holdings is approximately nine years. Importantly, every firm in our portfolio is engaged in industries that have long-term secular growth trends behind them, making them less prone to get blown off course if there are economic headwinds.
This explains why we have never held a mining company or an oil major, or steel, chemicals, automotive, airlines and so on. No two crises are the same, of course, but the usual suspects often do the worst under duress, and are hence missing in this portfolio – in this respect, the current crisis is much like the others.
With regards to the pandemic, the portfolio has undergone minor changes. One area we bowed out of was physical retail, including two holdings on two ends of the spectrum – one high-end, and the other a combination of high-end and affordable.