An opportunistic Bermuda investment is an example of delving between portfolio silos to make the most of inefficient market pricing.
It’s an approach IBV Capital espouses, transitioning into areas that are ripe for investment but don’t fit into conventional asset allocation segments.
The bottom line suggests it’s paid off. Talbot Babineau, president and CEO of IBV Capital, said the market value of its IBV Capital Global Value Fund increased by 2.7% in the third quarter of 2018, contributing to a year-to-date performance of 11.2%.
A notable part of the fund is its ownership stake in Ascendant Group, a security listed on the Bermuda Stock Exchange, which falls well outside the geographical regions that garner investor attention. Another “unconventional” investment is IBV’s position in preferred shares of Brookfield DTLA, a downtown Los Angeles office REIT. Babineau explained that this preferred share issue doesn’t currently pay a dividend and, therefore, also doesn’t fit neatly into an equity or fixed-income investment silo.
He told WP: “I think there’s market structures in place that make certain segments of the market more efficient for longer periods of time versus other segments of the markets that become inefficient more frequently during a period of time when there is a considerable amount of capital in the market.
“Those silos that are well worn because a lot of people transact in them become efficiently priced so what we’ve done is transition into areas of the market that fit between silos.”
Babineau said the fund had done “exceptionally well” with its foray into Bermuda and credits regular contact with management and a high level of due diligence for its success. As the sole electric utility on the island and a long-term asset, he delved into every facet of island life, including its unique political arena, which is dominated by two deeply and bitterly divided parties.
He added that Ascendant Group is the perfect example of looking between the silos for great value investment opportunities.
He said: “It’s an electric utility which everyone would summize is a very attractive space to be in but it’s a small island, it’s a small utility and it’s in a geographical region that not too many people follow.
“Even if it was the same size utility in Virginia, it would have a considerably higher following than it would in Bermuda. It’s an equity investment but it’s off the beaten path and as a result it doesn’t fit nicely into anybody’s investment portfolios.
“So because it doesn’t receive the attention or allocation of capital, it’s no longer efficiently priced. Preferred shares are exactly the same thing; it’s a preferred share that doesn’t pay a dividend – that doesn’t fit nicely into yield enhancing products.”
He added: “We’ve started to transition ourselves into investment ideas that had these attributes to them because they are inefficiently priced and because they are going to start to display characteristics that aren’t correlated to the market which, especially with what we’ve seen over the past number of weeks, is particularly valuable.”
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