The evolving COVID-19 crisis remains fluid, and all measures of risk have increased alongside the market’s fall.
At Wheelhouse, we never attempt to predict the direction of market movements. Rather, we eye the world through a consistent defensive lens that is always more concerned with downside risk, versus how much we stand to make should markets recover.
Our key objectives are to deliver a consistent 7-8% real yield, while assuming only around half the market’s risk. Our defensive approach is based on the following two investment processes that integrate to deliver a highly predictable return profile, even during market crises.
1) Income generation
Income generation has increased materially since the market drawdown commenced. In mid March, gross income generation is already over two times the usual average. This income stands between us and a loss, and forms part of our real return generation.
It’s worth highlighting that the heightened volatility in the market provides an opportunity for our systematic overlay to harvest outsized income returns. For example, one-month index options on the S&P 500 are currently generating nearly 5% in income for the month, or nearly 60% annualised return.
The Wheelhouse Global Equity Income Fund is well positioned to exploit this differentiated source of return and is systematically monetising this opportunity.
2) Capital protection
A unique aspect of our downside protection is our ‘always-on’ tail risk protection strategy, which is designed to engage in more acute or sudden drawdowns of typically greater than 10% in magnitude. The tail hedge is designed to reduce risk aggressively in market corrections, without the need to sell a single share. During these periods we actively manage the protection, extracting value wherever we can yet maintaining similar protective coverage of around 50-60% of the market risk.
Year to date the protective tail hedge has added 700 basis points in value, during which time we extracted over 300 basis points in cash which is added to our investors’ returns – no matter what happens next in the market.
For performance information, see our latest monthly report.
This information is issued by Bennelong Funds Management Ltd (ABN 39 111 214 085, AFSL 296806) (BFML) in relation to the Wheelhouse Global Equity Income Fund. The Fund is managed by Wheelhouse Partners, a Bennelong boutique. This is general information only, and does not constitute financial, tax or legal advice or an offer or solicitation to subscribe for units in any fund of which BFML is the Trustee or Responsible Entity (Bennelong Fund). This information has been prepared without taking account of your objectives, financial situation or needs. Before acting on the information or deciding whether to acquire or hold a product, you should consider the appropriateness of the information based on your own objectives, financial situation or needs or consult a professional adviser. You should also consider the relevant Information Memorandum (IM) and or Product Disclosure Statement (PDS) which is available on the BFML website, bennelongfunds.com, or by phoning 1800 895 388 (AU) or 0800 442 304 (NZ). BFML may receive management and or performance fees from the Bennelong Funds, details of which are also set out in the current IM and or PDS. BFML and the Bennelong Funds, their affiliates and associates accept no liability for any inaccurate, incomplete or omitted information of any kind or any losses caused by using this information. All investments carry risks. There can be no assurance that any Bennelong Fund will achieve its targeted rate of return and no guarantee against loss resulting from an investment in any Bennelong Fund. Past fund performance is not indicative of future performance. Information is current as at 16 March 2020. Wheelhouse Investment Partners Pty Ltd (ABN 26 618 156 200) is a Corporate Authorised Representative of BFML.