The Rothschild New Court Fund has opened positions in EADS and Anheuser Busch Inbev SA (NYSE:BUD) (EBR:ABI), in what looks to be a defensive measure in an investment environment with lots of high valuations. The New Court Fund, started in October 2011, totals £368.5 million in assets and has a net asset value of 12.06.
EADS is the European aerospace company best known for Airbus jets and Anheuser Busch Inbev SA (NYSE:BUD) (EBR:ABI) is the world’s largest brewer, owning major brands like Becks, Budweiser and Corona. “Both of these companies have high market shares and substantial barriers to entry, helping them to generate sustained growth in profits,” says the fund’s quarterly report. “As shareholders, we expect to be amply rewarded over the long term.”
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Rothschild favors low risk investments
This focus on relatively safe investments is no accident. Even though most analysts are bullish on equities for the next year, Rothschild prides itself on keeping volatility low and protecting its clients’ investments instead of pursuing high-risk, high-reward stocks. “Wealth preservation is what we do best, with an investment approach that helps us to smooth returns and dampen risk across the market cycle,” the company writes.
With that approach, only achieving two-thirds the growth of the overall market is probably to be expected as the cost of lower volatility and a smaller maximum drawdown. For people thinking about investing with the New Court Fund, a bigger question is whether the relatively young fund can preserve wealth during a downturn.
Rotshchild: Valuations leave little room for error
It also seems that the Rothschild isn’t as optimistic as most analysts (which probably makes sense given its wealth preserving mandate). “Looking ahead, the current valuations of equity markets give little room for error,” the company writes. “While we cannot forecast exactly what will happen, we continue to think it is prudent to ensure the Fund is effectively diversified. To that end, we bought additional portfolio insurance in late December in the form of put options linked to the US and German equity markets.”
There has been a growing focus on the importance of stock selection, as most people recognize that easy price growth is probably over and operational missteps will probably cause some stocks to lose ground in 2014, and risk averse investors like Rothschild are looking for safe harbors that are exposed to the economic recovery but aren’t likely to stumble.