Datt Capital’s decision to weight its portfolio holdings to energy stocks and cash for much of the past 12 months has paid off, with its Datt Absolute Return Fund producing a return of 11.04% in the year to June.
The S&P/ASX 200 Total Return Index fell 6.47% over the year, giving investors in the Absolute Return Fund outperformance of 17.51%.
Datt Capital Principal and Chief Investment Officer Emanuel Datt says it is the third financial year in a row that the Fund has achieved its objective of an annual double-digit net return.
Since the Fund’s inception in August 2018, it has achieved an average return of 15.65% a year.
The Datt Absolute Return Fund is a long-only fund that seeks to achieve an absolute return through the cycle. Primarily an equity fund, Datt Capital utilises a multi-asset approach, including debt and derivatives, to reduce downside risk and volatility.
The Fund’s largest sector exposure has been energy. Its top holdings are coal mining, port handling and logistics company New Hope Corporation, and miners Whitehaven Coal and Yancoal.
Datt says: “Energy is a proven performer in highly inflationary environments.”
The portfolio has been defensively positioned with above-average cash holdings. Datt says he expects the coming months to provide a smorgasbord of potential value-accretive opportunities.
“We believe we are truly entering the transition to a buyer’s market,” he says.
“The best strategy at this point is to focus on real assets and on companies providing goods with real, critical utility instead of stocks with a high level of abstraction. We believe that recently popular sectors such as technology and biotech will likely continue to struggle, requiring future recapitalisation and consolidation.”
One of the things that makes Datt Capital’s approach to equity investment different is that it does not use broker research and tends not to engage with management teams prior to investing.
Datt Capital’s sources for generating ideas include academic research, especially in the scientific and medical fields, general media, industry and peer networks, and primary research.