This is part two 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 will be downloadable as a PDF at the end of the series. So stay tuned for the rest of the series as well as the downloadable PDF!
Interview with value fund Shah Capital [Pt. 2]
RH: What are the qualities investors should be looking for when trying to identify the best companies?
HS: We try to develop a very deep understanding of the balance sheet and operational leverage that comes with it. We don’t simply throw out an investment candidate on high debt as really try to understand how that feeds into the business, the assets it owns and the upside potential (or downside) that the debt creates. With new era of “Wall Street” and information overload, the pendulum often swings too far and that’s where opportunities come up. We look for industry leaders which for some reason or another have run into tougher times. We also look for good turn-around candidates – companies which have fallen out of favor but are executing a strong strategy. Naturally management team is the one driving these efforts so we do try to make sure we are both on the same page and this is where our soft activist/consultative approach comes in.
RH: How much concentration are you prepared to take in a portfolio, how would you weight your best idea?
HS: We have had 3% positions become 10%+ of the portfolio. That said, we are comfortable with our top 10 positions accounting for between 50-70% of the portfolio. Our deep fundamental research gives us comfort with a concentration like this. On average the portfolio has 20-25 positions.
Interview with George Gianarikas, Managing Director and Head of Global Sector Strategy at Fundstrat Global Advisors
- Fundstrat’s George Gianarikas On John Malone [Part One]
- Fundstrat’s George Gianarikas On Tempur Sealy [Part Two]
- Fundstrat’s George Gianarikas On Liberty Global [Part Three]
RH: Would you mind sharing some of your current holdings or perhaps your highest conviction idea?
HS: Avon: This is a strong turn-around candidate including a play on rising Mexican Peso, Real and Ruble vs US$. This well recognized iconic beauty brand has been discounted too severely especially with the implementation of major restructuring, domicile change and sale of its money losing North America business. The model for direct sales is still in-tact and growing in the developing countries where Avon is focused on and do see lot more upside.
Coeur Mining: As the commodity cycle was tightening even further last year, we saw the miner space being punished more severely even with supply being cut while the demand for silver and gold was actually rising. The management was also ahead of the curve and truly cut all-in production costs quite significantly, and buying two great mines at attractive prices at the bottom of the cycle in early 2015.
Renesola: This is a $1.1B+ revenue global clean energy player – solar panels, storage, inverters and LED’s. While based in China, the company trades here in the US so naturally treated more as an orphan stock despite its scale, reach and free cash flow focus. Management is focusing on and have considerable expertise on smaller projects throughout the world which we think is a more profitable strategy with lower risk.