The latest performance statistics show the fund returned 17.5 per cent in the first five months of 2009, outperforming the IMA balanced managed sector average by 15.4 per cent. SVM says discounts started to narrow at the start of the year and gathered pace as markets bounced after the lows in March.
It says stockmarket rises in March and April were indiscriminate on the whole while May movements were more considered. Discounts have narrowed the most in the less risky areas but SVM believes investor sentiment improvements and money being committed to equities does not signal a recovery is around the corner.
Fund manager Donald Robertson says that some asset classes perceived as risky were de-rated last year so that discounts widened dramatically. He likens the discounts to a piece of elastic that will either ping back into its original position or snap if stretched too far.
He says “Private equity had been on discounts of around the mid-teens but that ballooned to 60, 70 and even 80 per cent in some cases. Property was similar, in that discounts had been widening for 18 months but it got hit in the financial crisis and discounts ballooned to 70 , 80 and 90 per cent.
“Some of these discounts were justified but some were not. The market is now being more discerning and so discounts in less risky assets are starting to nar- row. This narrowing will continue so that discounts are at more sensible levels but the risks are no greater than they were six months ago.”