Last year was “a year of two halves” for the six-year-old JABCAP Global Balanced Fund. The first half was frustrating as central bank intervention led to jittery markets that perversely rose in response to bad news, because this stoked hopes of yet more intervention. The second half shifted market dynamics towards a more fundamentally driven and discriminating market, which has always been helpful for Phillippe Jabre’s style of asset allocation and security selection. The drop in correlations between stocks, sectors, regions and geographies was particularly welcome.
If Japan’s tsunami-induced woes hampered Jabre’s 2011 returns, the resurgence of the Tokyo market in late 2012 was a boon. Whereas March 2011 was the fund’s worst month, down 8.25%, December 2012 was its best month, up 12.63%. Jabre was adept at identifying beaten-down names in sectors such as consumer finance and banking, which disproportionately benefitted from the Nikkei rally, with some stocks jumping 30% in a week. Jabre has been closely following Japanese equities since the 1980s, and views Japan as something of a sleeping giant. As a long-term believer in the deep value story, he also profited from Japanese equities in 2005 and late 2009. Jabre has got to know many of the company managements very well, and makes site visits as well. Although the fund rarely takes currency risk, a short yen stance added to returns in late 2012 as Jabre accurately anticipated that the new political leadership would succeed in weakening the currency. Geographic allocations also benefited from a strong weighting in the USA, where the economic recovery was moving onto a firmer footing.
Liquid, large cap and long equities were the primary return driver in 2012, but the fund is flexible and dynamic in rotating around cash, credit, convertibles and equities. The multi-strategy fund has sometimes been slightly net short with the aim of preserving capital rather than as a profit centre. Protecting the downside and participating in the upside has helped the fund to outperform the MSCI World Equity index by more than 60% since inception in May 2007. The return pattern also shows a positive skew, with the best months being larger numbers than the worst ones; conversely most financial assets have negatively skewed return profiles. Asset allocation can be swiftly rebalanced to take advantage of special opportunities: in 2008 Jabre had some losses over the summer, but finished the year up partly due to buying credit at bargain basement levels later in the year. A very defensive cash weighting of 65% in mid-2008 had been redeployed into corporate credit by early 2009. After four years of a credit bull market, the fund now has very little credit exposure left.
Jabre’s 2013 outlook is broadly constructive for stock markets. The big headline macro risks are, he believes, under control. It should therefore be a relatively safe environment for being long of risk assets – so long as macro economic data does not start to decelerate. Nevertheless, Jabre remains geographically selective, with the US and Japan his favoured markets. Europe and Asia may appear cheap, but both face huge uncertainties that the fund would prefer to avoid. Moderate leverage of around 30% is being employed, measured on a delta-adjusted basis. The net long equity position of 130% is in fact at the top end of the range.
Being located in wealth management centre Geneva has made it easy for Jabre to maintain dialogues with corporate and broker contacts who number Jabre among their key local investors: some 1,300 meetings were conducted last year. Local Swiss regulations from FINMA are also increasingly aligned with those coming from the European Union. The firm has a stable team of around 50 staff including many experienced equity and fixed income analysts who do deep fundamental research. Assets of $1.7 billion leave room to grow on a selective basis. Jabre Capital Partners also offers other strategies: multi-strategy, global convertibles, emerging markets and event driven.