Global equity markets continued to be volatile and fell into correction-mode in August, due largely to China’s weakening economy. Given the sharp decline that equity markets have seen, we are likely to see more volatility in the short-term and potentially new lows before US equities resume their up-trend.
Market corrections (defined as a decline in a given equity index of at least 10%) have been a rare occurrence in the current US equity bull market, but are a welcome event for value-oriented investors such as ourselves.
One of our favourite investing quotes is as follows:
“The stock market is a device for transferring money from the impatient to the patient.” – Warren Buffett
As a result, our 32% cash weighting in the AFINA Affinity Fund (as of July 31, 2015) was used during the August correction to buy several new stocks that have been on our radar screen, but were out of reach due to valuation. We also added to our existing positions, noting that the weighted-average dividend yield of the AFINA Affinity Fund is currently a hefty 3.45%.
The AFINA investment products performed well on a relative basis (see the table below) due to our value-oriented style of investing in high quality companies. It is important to note that the favourable relative performance was achieved, even though we do not hedge and short stocks in the AFINA Affinity Fund and AFINA Optima10. The only hedging that the AFINA Affinity Fund conducts is on the currency, such that we eliminate US dollar risk (although it would have been a huge net benefit for the Fund thus far in 2015).
As of August 31, 2015. All figures are net of fees and other expenses. Past performance is not indicative of future results. * 2014 results for the AFINA Affinity Fund LP include performance from October 1, 2014. Refer to afinacapital.com for full details and disclosures.