BTEM’s NAV fell by 2.5% in September. Our portfolio has negligible exposure to Sterling assets and so a strengthening Pound meant positive investment returns for the month were swamped by the impact of FX. The Pound rose against all major currencies (3.9% vs USD; 4.5% vs EUR; 6.1% vs JPY; 6.3% vs SEK; 6.2% vs NOK; and 4.6% vs CHF), although a significant portion of these moves has been subsequently reversed in October to date.
Aker was our largest contributor, adding 32bps to BTEM’s NAV despite the FX headwinds. Underlying holdings Aker BP (Oil & Gas E&P), Aker Solutions (Oil Services), and Akastor (drilling, rigs) all appreciated in excess of or in-line with a rising oil price, driving Aker’s NAV higher. Our return was further buoyed by Aker’s narrowing discount which contracted by 490bps over the month. Aker is a great example of how market sentiment can create opportunities. Over calendar year 2016, we had increased our position in Aker at discounts in excess of 40% at a time when many were very bearish on the oil price and oil-related equities. Our view was that Aker’s strong balance sheet meant it was better-placed to ride out a depressed backdrop than the market was giving it credit for. It became our largest holding and subsequently went on to perform very strongly, and we reduced our position significantly in late-16 and throughout H1-17 at discounts in the low-20%s. A widening discount in July of this year allowed us to increase our holding at a 32% discount to NAV at prices 23% lower than the peak at which we sold. Following the re-rating in September, Aker shares ended the month at a 29% discount to NAV. Largest holding Aker BP accounts for 61% of NAV and first oil at its flagship asset, Johann Sverdrup (break-even of $25 p/barrel), is scheduled for 2019.