When asked how he became so successful in investing, Buffett answered: we read hundreds and hundreds of annual reports every year.
Special situations is an asset class where we attempt to take advantage of short-term anomalies in the market and seek absolute returns that are uncorrelated with the wider equity market. For example, market anomalies occasionally present themselves in takeovers where the price of the target company does not rise to the bid price (less the time cost of money). Bid arbitrage occurs in times of high market volatility and presents very attractive risk/return profiles. Alternatively there may be a specific event that will trigger a rise in the share price.
Low beta investments have low correlations with the wider stock market and therefore may not fall during periods of market corrections.
Our past stock selection has included:
| COMPANY | SECTOR | RATIONALE |
|---|---|---|
| GCP Student Living Plc | Real Estate Investment Trusts | Provides exposure to student homes. Has a low beta (0.05) and yields >4% |
| Impact Healthcare REIT | Real Estate Investment Trust | Provides exposure to care homes. Has a low beta (0.09) and yields >5% |
| JLEN Environmental Assets | Equity Inv Instruments | Alternative energy company with a low beta (0.08) and yields >6% |
| Regional REIT | Real Estate Investment Trust | Trades at a discount to NAV with a >7% yield |
| Standard Life Private Eqty | Private Equity | Provides exposure to private equity. Has a low beta (0.44) and yields >3.5% |
These shares can be bought with a very short term time horizon or longer for low beta investments.
For investors with a higher risk tolerance, we can manage between 12.5% and 50% of the alternatives allocation in options.