Branzan Advisors Commentary | March, 2020 - 2
March 13, 2020
We wanted to provide you with some thoughts on the markets in light of the recent coronavirus outbreak. The decline in the domestic and global equity markets has been swift as investors try to forecast the impact of the virus on the global economy. More than anything, markets hate uncertainty. The economic impact of the coronavirus is unknown and the longer the pandemic goes on, the larger the impact on the global economy. While travel and hospitality stocks have been among the hardest hit, there will be a slowdown in spending that affects most industries and companies. We expect earnings will suffer and stocks will continue to be volatile until the virus is under control. While there have been some encouraging signs in the hardest hit regions of the world, we are not out of the woods yet.
We have been concerned about the high valuations in equity markets for some time. We have been accumulating cash in anticipation of a decline in markets and prior to this decline, approximately 13% of the Branzan Alternative Investment Fund (BAIF) had been in cash. Because of this accumulation and the rapid decline in the equity markets, we have an opportunity to add to existing positions or create new publicly-traded positions in BAIF at very attractive prices. Over the past week we have added to positions in a business development company, two royalty trusts and a real estate company. We also established a new position in an ETF for oil and gas master limited partnerships. We plan to continue to selectively add to existing positions and add new positions in the fund as this volatility creates attractive opportunities.
We are monitoring our real estate investments in BAIF and are in contact with the sponsors that manage the properties. BAIF’s holdings are diversified across asset types including multi-family, self-storage, office, retail, mixed-use and hospitality. With a decline in travel, we are watching the retail and hospitality properties closely. We believe the properties the fund owns are well-positioned and conservatively capitalized which should allow them to weather the storm.
The slowing economy due to the coronavirus started to weigh on the price of oil, but a stand-off between Russia and Saudi Arabia resulted in a 20%+ decline in the price of oil over last weekend. While this decline could be seen as a positive for the consumer, we are concerned that it may result in bankruptcies across multiple oil companies which would result in job losses that could more than offset the positive impact of lower oil prices for consumers. That said, we believe it creates significant opportunities for the Branzan Energy Income Fund II. We have invested approximately 50% of the $9 million fund and are actively looking at new mineral acquisitions. While the price of minerals does not fluctuate as much as the underlying price of oil, we believe that significantly lower oil prices will give us more negotiating power when acquiring new mineral packages.
Be assured that Branzan is continuing to manage your investments in a safe and prudent manner.
Very truly yours,
Branzan Investment Advisors
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