Timing is everything when it comes to the bond markets

Outlook

In the wake of a miserable set of results, is the activist investor that laid siege to Alliance Trust now regretting agreeing to play nice?

After a brief but bitter springtime tussle over its performance, the trust and US hedge fund Elliott Advisors hammered out a deal of sorts. The company promised change and agreed to appoint two of three non-executive directors that Elliott – its biggest shareholder – wanted on the board. In return, the hedge fund promised not to “agitate” publicly or to call any shareholder meetings before the 2016 AGM.

Less than three months down the line and all the trust’s bullish claims about how well it was doing have been undermined by a rotten investment return of 1.4 per cent for the first half of the year, ranking it 29th out of a 36-strong peer group.

The explanation? Chief executive Katherine Garrett-Cox said much of the underperformance occurred in June, when the bond market fell out of bed, battering the trust’s returns in the process. “It was a timing issue in many ways,” she suggested.

What that means is that the timing of the turbulence came at just the wrong time for Alliance’s reporting cycle. So she has a point. Had the bond market taken a turn for the worse a few months earlier, and then corrected itself, it might not have shown up in the results at all.

Those results provide only a short-term snapshot, and an artificial one at that, particularly when you consider that Alliance’s aim is to outperform the market over the long term. But Ms Garrett-Cox’s blaming of timing is still problematic. What is the fund-management business about if it is not about timing?

Stars such as her reap huge salaries from the fees paid by armies of small investors because of their supposed ability to know when it is the right time to buy, when it is the right time to sell and when it is the right time to shift out of one asset class and into another.

Had the long-term timing of Ms Garrett-Cox and her team been better, Alliance might be in better shape and the activists would have been focused on other targets.

Of course, there were yet more promises of change in the results statement. When it comes to the timing of that change, Ms Garrett-Cox would be wise to act quickly.