Hansa says markets ‘priced to perfection’ as it awaits Ocean cash

Salomon banking family-backed Hansa Trust (HANA ) says global stock markets remain ‘challenging’ as it awaits a windfall from the sale of a Brazilian port by the fund’s largest holding Ocean Wilsons.

The defensive £181m global equities investment company reported a 3% total underlying investment return in the six months to 30 September, versus a 3.3% increase in the MSCI All Country World index. Gains were fuelled by Ocean Wilsons, the largest holding in the portfolio at 28%, which announced the sale of a Brazilian port in October that will result in cash proceeds of at least $593m.

Shares in Bermuda-based but London-listed Ocean Wilsons gained 10.7% over the half year and Hansa said ‘a meaningful proportion of these proceeds will be returned to shareholders’ either via a special dividend or a share buyback programme.

The promise of a large return of capital helped narrow the long-standing discount on the non-voting ‘A’-shares held by most investors, taking it to 43.1% from 46.1% over the period. 

However, they fell 3.5%, or 8p, to 218p today as stock markets rallied at the appointment of Scott Bessent as Donald Trump’s US treasury secretary.

Chair Jonathan Davie said the board of Ocean Wilsons ‘must be congratulated on getting a good result for shareholders after a very protracted process’.

Hansa first invested in Ocean Wilsons back in 1959, long before the company listed in 2007. Since then to October 2024, the company generated a total return for its shareholders of 721% in Brazilian real. However, going back to when data was available, Davie said between July 1992 and October 2024 it has delivered a total return in sterling of 12,549%.

‘To put that excellent return into context, £10,000 invested in Ocean Wilsons in July 1992, with dividends reinvested, would now be worth a very respectable £1.25m, versus a mere £67,000 for the FTSE 100,’ said Davie.

While Ocean Wilsons had provided a stellar long-term performance, Davie was cautious about current markets due to ‘credit spreads at historically very tight levels, the gold price at record highs, and many stock markets at or near all-time highs’.

With further interest rate cuts in the pipeline, he said it ‘does seem to me that everything is pretty much priced to perfection’.

Although a US recession did not look imminent, he said it was a ‘very challenging time for investors’.

Hansa fund manager Alec Letchfield said global markets had been positive over the period with straggler China planning ‘catch up’ following a substantial stimulus package from Beijing.

However, he expressed concern the market was ‘getting complacent’ and warned that while Donald Trump’s re-election this month has been a boon for stocks, longer-term ‘it is likely that Trump’s desire for lower rates and more stimulus will lead to a boom-bust scenario, sending stock markets violently up and down in the process’.

Globa equities

The global equity portion of the portfolio, which is also home to funds and private equity investments, rose 8.9% over the six months, with UK-listed Coats (COA) being one of the largest contributors along with Interactive Brokers and Swedish technology company Bergman & Beving.

Letchfield said as market valuations soared it was ‘easy to get caught up in the euphoria of celebrating winners and counting gains’. However, the fund was steadfast in its focus on absolute levels of risk and always asked: ‘How much could we lose if we’re wrong?’

He flagged the second largest holding, Spanish insurer GCO, which has delivered a return on equity of 15% over the past 30 years.

‘Though its return on equity has dipped to 12% over the past decade, we believe the return to higher interest rates could push it back into the teens,’ he said.

‘The book value is €46.00 [£38.40] per share, providing a solid backstop in a worst-case scenario. Included in this figure is €1.2bn of cash in excess of regulatory requirements, which reflects the company’s conservatism but also gives room for shareholder returns or potential acquisitions.’

Letchfield said a return to the historic valuation level could see the shares increase to €69.00, ‘suggesting it trades at just 55% of intrinsic value today’ and vastly limiting the downside risk of the stock.

Hansa’s longstanding caution has meant a total return on net assets of 81.8% over 10 years that has trailed a long way behind the 223% of the MSCI World index, although it has edged higher than the FTSE All Share’s 80.1%. However, the chronic discount on its stock has left shareholders with just 48.8%, according to Deutsche Numis data.