Letter to Partners - January 2025
10 January 2025 - Chapter 2
To the Partners of the IBEX Celestial Investment Partnership
The IBEX Celestial investment Partnership was launched in early September 2024 and transferred the open positions from the preceding Celestial Strategy. Since launch the fund has increased by 0.5% that compares with a 1.3% increase for the MSCI All country world index over the same period. Celestial aims to generate consistent returns over the long term and reference to an index, is to place the performance, as short term as it is, in context. Given current valuation levels of the major indices, we expect the absolute return of the main indices, at today’s prices, to be modest over the next 5-7 years and not be much of a return hurdle.
Our launch date coincided with some of the highest valuation on record with the following 3 graphics depicting what investors in S&P 500 ETF’s, currently own:
In summary, the dividend yield of the S&P 500 is at an all-time low, the price to book ratio is at an all-time high and the concentration of the top ten companies in the index is at an all-time high. This is not a prediction or a forecast of what may happen, merely the current state of what you own, if in vested in S&P 500 index. (Hat tip to David Bahnsen for these graphics.)
There is a place in all portfolios for index investing. However, the current overall US index valuations, suggest that investors may may be better served by owning a selection of quality businesses, trading at reasonable valuations, versus owning the index.
Howard Mark’s published his latest memorandum on 7 January 2025, titled “On bubble watch” which can be found here: https://www.oaktreecapital.com/insights/memo/on-bubble-watch
A select quote from this piece:
“My early brush with a genuine bubble caused me to formulate some guiding principles that carried me through the next 50-odd years:
It’s not what you buy, it’s what you pay that counts.
Good investing doesn’t come from buying good things, but from buying things well.
There is no asset so good that it can’t become overpriced and thus dangerous, and there are few assets so bad that they can’t get cheap enough to be a bargain”
So where have we got to? Four months into our journey, we have invested 43% of the capital in 13 companies with 57% in short-dated US treasury bills at year end. You can expect the cash/T-bill proportion to decline markedly over the next few months as new investments are made. The areas where we are looking to make additional investments include mid cap market in the US, where certain quality companies are trading at reasonable valuations. In Europe there are top quality companies that offer good value at today’s valuations. To put the current portfolio in perspective and provide some explanation of what we seek to invest in, Celestial’s current portfolio characteristics vs the S&P500 is as follows:
Our focus is on quality companies in which we invest for the long term. We aim to achieve consistent growth in NAV over the full investment cycle. In constructing our portfolio, we aim to have a mix of quality companies at different stages of their development. Our categorisation is as follows:
· Large, simple, high conviction holdings – Quality Stalwarts.
· Smaller, proven quality companies, and
· Quality companies at an earlier stage of their growth cycle, which may have more upside.
To refine our thoughts on portfolio construction, we add a further axis and seek out companies that have one or more of three characteristics that historically have been an indicator of long term shareholder success. The characteristics that we seek are 1) owner operators, 2) duopoly’s, oligopoly or 3) more mature businesses that in addition to growing their operations, have a history of consistently buying back their share to increase their EPS annually at above average rates. The following graphic depicts our thinking and contains the current portfolio:
At Celestial, we aim to have a constituency of investors that, 1) Understand our operations, 2) approve of our policies and, 3) share our expectations on returns and time horizons. We hope these these six-monthly newsletters and the monthly thoughts on quality companies will shed light on the above.
Partners should be receiving their monthly statements directly from Interactive Brokers and should you require any more detailed information regarding your account of have any queries, please contact our administrators, IBEX Capital via e-mail at invest@ibexcapital.co.za or alternatively call direct on +27 21 007 1525.
A few words on the need for patience. Several investors are new to the fund since the re-launch in September and it is important that we reiterate some of our principles so that we all know where we stand. One of our key advantages will be the appropriate focus on the long term and the aggregate patience of our investor base. We are truly investing for the long term, where very few are, in this industry! If Celestial is to have a competitive advantage over the competition, it will come from the capital allocation skills of your manager (if competent) and the patience of our investor base. History has taught us that truly superior investment performance is a direct result of allowing compounding of owners earnings to reflect in valuations over time. The most told tales of short term investment success, belongs to the speculator, who in typical social media fashion, only selectively shares the best stories, never the full picture.
We value your support and welcome your comments.
Yours truly
Chris Mostert
Disclaimer: The information provided on this page is for informational purposes only and should not be interpreted as investment advice or as a recommendation to buy or sell any stocks. It merely reflects our views on the companies we have analysed and in certain instances in which we have invested or whose shares we have divested. Please note that the past performance is not indicative of future outcomes and should not be relied upon as such.