Branzan Advisors Commentary | March, 2020 - 1
March 4, 2020
Like all years, 2019 had its investment moments and 2020 promises more of the same. In 2019, many asset classes performed well – U.S. large cap stocks, global stocks and the U.S. Dollar were all positive for the year. Commodities were a mixed bag in 2019. Gold and silver did well in 2019 as did other commodities associated with economic growth (oil, nickel, platinum). Laggards included natural gas and coal due to oversupply and environmental concerns, respectively.
Since Branzan’s founding almost 18 years ago, we have focused on providing our partners exposure to investment classes outside of typical stocks and bonds. While traditional equity and fixed income investments play an important part in an investor’s portfolio, we believe that most investors have more than enough exposure to those asset classes and it is vital for a prudent investor to have other investment classes that don’t move in lockstep with stocks and bonds.
That’s where Branzan comes in. Since forming our first private limited partnership in 2002, we have been providing our clients access to investments such as real estate, private credit, mineral rights and royalties and other opportunistic investments. We have institutional-quality deal sourcing and an investment committee with decades of experience evaluating private investment opportunities. We look at scores of private investment opportunities every year, but only invest in a handful. As we have mentioned in the past, Branzan principals and employees are invested alongside our limited partners in our funds. We believe that allocating our capital alongside that of our partners creates strong alignment and should be something every investor looks for in an investment manager.
Branzan’s Diversified Funds
In both diversified funds, real estate continued to perform well during the fourth quarter. Whenever possible, our real estate properties have been refinanced at lower interest rates and equity has been distributed to the partnerships. Taking chips off the table in this manner can be the best of all as it frees up capital for other investments while retaining the right to any future appreciation. As all of our real estate loans are at fixed rates and are non-recourse to the Funds, we believe it is a low-risk strategy.
Both of Branzan’s diversified funds own gold and have since their inception. We believe gold (and silver, to a lesser extent) warrant a place in a well-diversified investment portfolio. Under intense social pressure, most gold bugs swear that they hold gold only as insurance against catastrophic events in liquid securities and not as an investment. We’re different—we mean it. We don’t want our gold insurance to pay off any more than we want to collect on the fire insurance on our homes. But, as the coronavirus outbreak plays out, we’re glad we own gold instead of almost anything in China.
Branzan’s Mineral Rights and Royalties Funds
Due to increasing demand, oil had a good year in 2019. Conversely, natural gas continued to sink. On some dates and in certain locations it was literally being priced upside down, where buyers were paid to take if off the hands of sellers, almost in the nature of negative interest rates and hard to comprehend without bringing on a headache.
The lack of capital pursuing oil and gas investments is leading to some compelling opportunities in the mineral rights and royalties space. While there seems to be a perfect storm of negativity surrounding the industry, resulting from environmental and regulatory concerns and poor historical performance of the equities of publicly-traded E&P companies, we believe it presents us with a once in every 10 year opportunity to acquire minerals at attractive prices.
For most asset classes (especially large-cap U.S. equities), 2020 started off as 2019 left off. However, after a strong start to the year, volatility and risk are back. We are seeing significant daily moves in the equity markets due to concerns over the impact of the Coronavirus on the global economy. Gold is hitting seven-year highs and the 10-year U.S. Treasury bond yield is at its lowest level since 2016. Oil has declined as investors become concerned about global growth. In general, investors are fleeing riskier assets. We anticipate the Coronavirus outbreak will slow over the next couple months, but in the meantime it could be a rough road. We will continue to strive to be good stewards of your capital.
Very truly yours,
Branzan Investment Advisors, Inc.
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