Active fund manager Bronte Capital, led by John Hempton, has faced a challenging period, revealing a significant downturn in its flagship Amalthea fund. The fund, which employs both long and short positions to manage investments for its clients, reported a 13.6 per cent loss for the financial year to date. This follows a 5.89 per cent decline in the March quarter alone, according to a recent letter to investors. While the March quarter performance was slightly better than its MSCI benchmark’s minus 6.2 per cent, Bronte Capital aims for low correlation to indices, diminishing the significance of this comparison.
The recent downturn is primarily attributed to ‘two very bad weeks’ directly following the onset of a war, which analysts suggest refers to the US-Iran conflict and subsequent oil crisis. However, the fund’s letter also conceded broader issues on the long side of its portfolio, admitting to investing in companies that ultimately failed to meet quality expectations. Bronte Capital stated its ‘wrongness… was comprehensive’ in this regard, and also highlighted missed opportunities to sell out of some holdings, such as English pump and steam equipment company Spirax, at their peak.
Despite these challenges, John Hempton, known for his candid communication, expressed a degree of optimism about the portfolio’s future. The letter claimed that ‘aside from those two weeks, we actually had a darn good quarter’ and asserted that the portfolio is ‘better than fine at the moment.’ Bronte Capital anticipates potential boosts from its short positions, though the timing remains uncertain, and noted that quality stocks are now appearing undervalued. Furthermore, the energy crisis has driven down some company share prices so severely that ‘the penalty for being wrong should be much lower,’ offering a unique perspective on current market conditions.
