Parames’ Bestinver Newsletter July 2013
Parames’ International Portfolio
The net asset value of our global portfolio rose by 12.7% in the first half of 2013. The benchmark index, MSCI World (Morgan Stanley Capital International) rose by 8.6%.
The long term annual return for the global portfolio for the last 5 and 10 years has been 11.5% and 12.3%, respectively. This annual return outperformed the index by 7.1% and 8.5%, respectively. Since its inception in 1998, the international portfolio has generated an annual return of 10.1% up to the end of June 2013, compared to an annual return of 1.8% for the benchmark index (MSCI).
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Some of the best performing companies in this first half-year have been: EXOR SPA (OTCMKTS:EXORF) (BIT:EXO) (+39%), partly due to the proposal to make the preferred shares equal to the ordinary shares; Thales (XPAR:HO)(+39%), mainly due to the good progress being made in its process of improvement and internal reorganization; Lagardere SCA (EPA:MMB) (+29%), bolstered by the materialization of the value of its holdings in the aerospace manufacturer EADS; Dassault Aviation SA (EPA:AM) (OTCMKTS:DUAVF) (+24%); and Willis Group Holdings PLC (NYSE:WSH)(+23%). All of these companies, due to their weight in the portfolio, have contributed significantly to its strong performance. Furthermore, other holdings with less weight, particularly DCC, M6, Sol SpA, Ahold and LG Household & Healthcare, have also contributed to the profitability of the portfolio with their excellent performance.
However, in the first half of 2013, the aggregate valuation of the fund dropped slightly by 1.2% to €44.3 compared to €44.8 at the end of last year. In this period we have raised valuations for 21 companies and lowered them for 23, with the above mentioned net impact of a slight decline. Among the most significant changes, we would mention that we have lowered the valuation of the logistics operator STEF-TFE, to take a more conservative stance.
The international portfolio stands at a PER of 9.1x with an upside potential of 65%. In other words, the price to value ratio of Bestinver International is 0.61 cents, which means that each euro of value of the fund can be acquired for 61 cents (of the value estimated by Bestinver).
Parames’ Iberian Portfolio
The net asset value of our Iberian portfolio rose 4.5% in the first quarter of 2013. The benchmark index (70% IGBM and 30% PSI) dropped 2.4%.
The long term annual return of the Iberian portfolio in the last 5 and 10 years has been 1.6% and 10%, respectively. This annual return outperformed the index by 9.4% and 8.2%, respectively. Since its inception in 1993, the Iberian portfolio has generated an annual return of 15.1% up to the end of 2013, compared to an annual return of 6.4% for the benchmark index.
Among the most noteworthy rises in the portfolio, we should point out Laboratorios Almirall (+33%), Semapa – Sociedade Invest Gestao SGPS SA (ELI:SEM) (+19%), Gas Natural Inc (NYSEMKT:EGAS) (+17%), Laboratorios Farmaceuticos ROVI SA (BME:ROVI) (+31%), Zon Multimedia (+29%), Altri (+19%), Antena3 (+55%) and Mediaset (+31%). This strong performance has been offset by falls in the prices of a few companies, particularly Acciona (-27%), Portugal Telecom (-12%), Arcelor Mittal (-32%) and Pescanova. Special mention should be given to Pescanova, a company in which we lost the entire investment, which fortunately was limited to 1.5% of the fund. The information published about what happened in Pescanova points to a complex case consisting of accounting fraud and other misdeeds that regrettably we did not detect and which took us and most of the shareholders, creditors and responsible authorities by surprise.
In spite of the loss of value of Pescanova, the aggregate valuation of the fund improved by 3.4% to €79.4 in the first half of 2013. This increase is not, in fact, a result of having raised the valuation of companies since, among the various valuation increases and decreases, the net effect has been negative. Rather, it is due to having increased the weight of some of the companies having the greatest potential, generally taking advantage of drops in their market prices, among which we would draw special attention to Arcelor Mittal, Acerinox, Telefónica, Acciona, CAF, Elecnor, Galp and, for the first time in over a decade, holdings in the Spanish banking sector in Bankia, Bankinter and Liberbank that, for the moment, have only a small weight in the portfolio. At the same time we have been reducing the weight or selling all of the holdings in companies that have exhausted their upside potential as their market prices rise.
The domestic portfolio stands at a PER of 7.6x, offering an upside potential of 99% and a price to value ratio of 50 cents for each euro of the target price.
Parames’ Bestinver Hedge Value Fund
The net asset value of the Bestinver Hedge Value Fund rose 14.8% in the first quarter of 2013, outperforming Bestinfond (+10.9%). Since it was launched in 2007, the Hedge Value Fund has a cumulative return of 31%, outperforming the 15.3% cumulative return of Bestinfond and that of the MSCI, which dropped by 4.0%.
In the first quarter, the target price has increased 0.3% to € 253.7. The fund stands at a PER of 7.7x, offering an upside potential of 94% and a price to value ratio of 52 cents for each euro of the target price.
This document has been prepared by Bestinver Gestión, S.A. SGIIC for information purposes only and under no circumstances is to be considered as an offer to invest in the funds. The information has been compiled by Bestinver Gestión, S.A. SGIIC from sources considered reliable. Nevertheless, even though reasonable steps have been taken to ensure that the information is correct, Bestinver Gestión, S.A. SGIIC does not guarantee that it is accurate, complete or up-to-date.
All the opinions and estimates included in this report are representative of the view of Bestinver Gestión, S.A. SGIIC on the date to which they refer and may change without prior notice. All the opinions expressed are of a general nature and do not take into consideration the specific investment aims, financial position or individual needs of each person.
In no event shall Bestinver Gestión, S.A. SGIIC, its Directors, employees or authorized staff be liable for any damages or losses that might arise, either directly or indirectly, from the use of the information contained in this document. The announcement of past returns in no way constitutes a promise or guarantee of future returns.
All of Bestinver’s returns are expressed in euros and are shown net of expenses and fees.
Text prepared by Fernando Bernad Marrase (Bestinver Fund Manager). All Bestinver funds are jointly managed by three managers; Francisco García Paramés, Alvaro Guzmán de Lázaro and Fernando Bernad Marrase.
This quarterly newsletter and those before it appear on our website.
Potential: The upside potential which, in the view of Bestinver’s Managers, each fund has at any given time, calculated as the difference between the current PER and the target PER. It does not refer to the gains a fund will have over a specific period of time since, although the fund may gradually approach a specific return, the aim of the managers is to increase or at least maintain said potential.
PER: Free cash-flow price at which a fund stands according to the PER estimated by Bestinver’s managers for each company (includes adjustments such as debt, the point in the cycle, market price, currencies etc).
Price: The Net Asset Value of the units in the fund at any given time. For Bolsa Internacional the NAV of B. Internacional is used and for Bolsa Ibérica that of B. Bolsa.
Target price: The Net Asset Value which the units in the fund can reach based on the intrinsic value of all the stocks comprising the portfolio, in the opinion of Bestinver’s fund managers.