This is the final part of a three-part interview with Himanshu H. Shah President and Chief Investment Officer of Shah Capital. The interview is part of ValueWalk’s Value Fund Interview Series.
Throughout this series, we are publishing weekly interviews with value-oriented hedge funds, and asset managers. All the past interviews in the series can be found here.
Shah Capital is a global investment firm targeting unique opportunities, primarily focused on deep value, turn-around and special situations. According to BarclayHedge data, since inception (July 1, 2006) Shah has produced steady returns for investors reporting annualized net gains of 7.8% per annum.
According to BarclayHedge, over the past three years, Shah has achieved an extremely impressive annualized compounded return of over 20%. In their rankings, the fund has been ranked #8 for equity long-biased funds for the past 36 months.
For compliance reasons, Shah Capital’s own returns figures cannot be published.
The interview has been divided into several parts and is downloadable as a PDF below. Stay tuned for the next interview in the series!
Interview with value fund Shah Capital [Pt. 3]
RH: You own two very controversial companies, Seadrill, and Genworth both of which have operational problems and debt issues. To help our readers understand your investment process, could you comment on why you believe these companies are attractive, despite their problems?
HS: On Seadrill – The entire offshore drilling space has been hit hard with oil plummeting under $30 early this year and still under $50. With considerable debt load market is treating the equity as an optional value, however, we see it as a survivor in light of its profitability, free cash flow generation, smart debt retirement, management credibility, the most modern fleet of equipment in the business, strong lead shareholder and most importantly see oil trading over $50 plus in Q4 and onwards turning the other way in this very depressed activity market. In situations like this, we only risk up to 1.5% of portfolio capital.
On Genworth – It has been in a penalty box since the management blunder in 2014 even though the core business is more profitable and the management has been successful in reducing bloated cost structure and getting return over cost of capital for its Long Term Care business. We really like the BOD’s direction in splitting the company in two businesses to realize its true value which is lot higher than its current share price.
Interview with Michael van Biema and Allen Benello, two of the three authors of the book, Concentrated Investing: Strategies of the World’s Greatest Concentrated Value Investors
- Michael van Biema And Allen Benello On Concentrated Investing [Part One]
- Michael van Biema And Allen Benello On Valeant Pharmaceuticals [Part Two]
- Michael van Biema And Allen Benello On Time Arbitrage [Part Three]
RH: The fund invests both in and outside the US. In which other markets around the world are you finding value today?
HS: Outside US, we have been active in China for the last 10 years. Lot of Chinese equities listed in US and Hong Kong trade at orphan valuation compare to their global peers as well as their brethren trading in Shanghai/Shenzhen. We are positive as corporate governance is getting better and do see more consolidation to drive higher profitability. The companies we look at in are often global leaders in their innovation or respective technology. Additionally, foreign investors are extremely under allocated in China equity space. We have also been positive on Brazil since early this year with the potential of the leadership change.
RH: And lastly, what advice would you give to value investors who are just starting out (or even experienced value investors) to help them navigate today’s market?
HS: Stay disciplined to your research process as it must be the foundation and try to block out as much market chatter as possible – one has to really understand the underlying business vs price movement. The second bit would be to really understand the global dynamics as it is at large a flat and a very competitive world!