The Refined Growth Fund – Monthly Update

Equity and bond markets fell in February as economic data around the globe came in stronger than expected. Markets are increasingly pricing in the belief that we will have higher rates for longer.

Against this backdrop, the Refined Growth Fund fell 0.34% over the month. Handily, a number of recent (early-) maturities in January and February have meant that the Fund is in a relatively defensive posture, ending the month holding 11.44% cash. We thought it would be interesting to go into a little more detail on two of the trades that have just redeemed.

Firstly, we bought a fixed-term, fixed-coupon note in June of last year. Originally a six-year note, it had seven months left to run and was trading at almost a 4% discount to par in the secondary market. This, together with the final coupon due, annualised to an almost 12% p.a. return. 

Due to the paths of the underlying indices, much of the sensitivity was on a single index—the FTSE 100—and there was a 37% buffer before capital would have been at risk. Given this, the portfolio managers thought the 12% annualised return a rich reward. There was also a diversification benefit to owning another credit within the portfolio.

This note matured as expected in February, at par plus the final coupon.

Two months later—last August—the portfolio managers purchased a UBS-issued autocallable note, this time at a premium to par (c. 110%). This note had been issued in January 2020 and would autocall with a cumulative redemption premium of 5% per half-year if all the indices were observed to be at or above their initial level.

Given this note had been issued just prior to the Covid period, the product had accumulated a potential 30% return, which would be realised if it were to redeem early in January this year, which it duly did.

Despite recent falls, major indices are still hanging on at levels that would allow a number of other products to the fund to redeem early, which would increase the levels of cash in the fund. Given the current uncertainty over the future path of rates and—consequently—equity market levels, the portfolio managers feel it prudent to maintain this defensive stance, and only slowly re-invest cash into new opportunities.

You can read more in our February factsheet here.