The Management View

Michael Rudd, CFA | President, CEO & Portfolio Manager

Regular readers of the Pathfinder Investment Outlook will recognize the Purchasing Managers Indices (PMIs) in Figures 1 and 2 below. PMI indices are calculated by taking a monthly survey of managers from a broad cross section of the global economy. In the survey, corporate managers are asked about their business intentions going forward (i.e. production, hiring, new orders, inventory targets, etc.). The answers to the survey are designed to be “yes” or “no”. This results in a weighted score with 50 as a base, such that a score of over 50 indicates a positive view, or expected business expansion, while a score under 50 indicates a negative view, or business contraction. The data is then aggregated into various sub-indices by company type like Manufacturing (e.g. Automotive, Machinery, and Textiles) or Services (e.g. Information Technology, Financial Services & Hospitality) or across all companies in aggregate like hiring, inventories, deliveries or new orders. They are also grouped by counties and geography and this is what we have presented in the charts below.

  • In Figure 1, we selected the major economies of the world and plotted their Manufacturing PMIs – blue lines for Developing countries and green for Developed.
  • We note the changing and opposite trends in Manufacturing PMIs for Developed vs Developing Markets. Counties like Europe, Japan and the US were strong at the end of 2020 but have since drifted into contraction. Countries like India, China and Mexico have improved significantly on the other hand.
  • Figure 2 presents Services expectations for the same group. Notice how most counties have steadily increased into expansion for services over the past 2 years. All major economies are now above 50.
  • We can conclude that manufacturing businesses have not been nearly as strong as service companies.

“This means that” a substantial part of the economy (services) looks relatively healthy. This is material for a country like the US, where two thirds of GDP is driven from the consumer. Manufacturing looks more balanced but there is some concern for countries like Germany, South Korea and China that are more exposed to manufacturing. We believe that ultimately consumers will feel a manufacturing slowdown. It is important to monitor industrial and manufacturing expectations.

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Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Real Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund

*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).

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