The results for the first half of 2018 for Dyrtidsfonden (LD) show an investment loss of DKK 311 million. For the majority of members, this resulted in a return of -0.8 per cent in LD Discretionary, which, in absolute terms, is by no means satisfactory. Approximately 98 per cent of LD Discretionary’s assets are invested in LD Aktier & Obligationer, which is regularly assessed in Morningstar’s rating® of 700 comparable European funds, and here, the loss in spring 2018 has not affected its position amongst the top 10 per cent of funds. In relative terms, the return is therefore considered very satisfactory.
Threats of trade wars
LD’s results should be viewed in the light of the exceptional circumstances that characterised the financial markets in the first half of 2018. A strong US economy and favourable growth prospects elsewhere in the world would normally have been sufficient to drive positive developments in the financial markets, but shifting political statements from the US President regarding tariffs and trade wars created uncertainty in the financialmarkets. Monetary policy in the US is undergoing a gradual shift towards a less accommodative stance, whilst concerns about rising government debt are mounting. Political uncertainty has affected exchange rates and, consequently, returns on various assets.
Lower returns than expected
Gold-edged bonds yielded a return of 0.6 per cent, which was better than the benchmark index set by LD. Credit investments made a negative contribution with a return of -1.6 per cent, whilst equities delivered a return of around zero, and alternative investments yielded 1.7 per cent. Both credit and equities underperformed their respective benchmark indices, and within alternative investments, the return fell short of LD’s return requirement.
There are several reasons why the results, judged by LD’s own standards, are unsatisfactory. LD’s defensive strategy in the equity market meant that it was significantly underweight in growth shares, which delivered relatively high returns during the period. These include global players such as Facebook, Amazon, Apple, Netflix and Google, all of which have seen substantial price rises over a long period, but which can also experience significant fluctuations over short periods. The underweight position in growth shares was a key reason why LD’s share returns did not match the benchmark index.
In the credit sector, too, the lower risk in LD’s portfolio has resulted in a lower return than the benchmark index.
LD regards currency fluctuations as a risk and therefore the portfolio in LD Discretionary is hedged against currency losses on the main currencies. However, in the first half of the year, currency hedging made a negative contribution, with a return of -0.4 per cent, primarily as a result of the strengthening of the US dollar.
LD’s Half-Yearly Report 2018
