Robotti’s Isaac Schwartz Has A Tenth Of Its Portfolio In Kazakhstan

Robotti & Co Global Fund portfolio manager Isaac Schwartz explains why he’s invested in Kazakhstan and Slovenia

The one thing that good value investors all have in common is the willingness to look for opportunities that no one else will touch. So when Isaac Schwartz, portfolio manager of Robotti & Co’s Global Fund, says that he’s heavily invested in Kazakhstan it’s surprising but that may be part of the point.

“Kazakhstan in particular has become a place of real interest to us,” said Schwartz in an interview with Nathaniel E. Baker in today’s Bloomberg Briefs. “We have five investments there, worth a 10th of our portfolio.”

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Isaac Schwartz explains why he’s invested in a Kazakhstani bank

Schwartz explains that the main stock market index skyrocketed between 2000 and 2007, but that it’s fallen 70% since then leaving valuations in a pretty reasonable spot. He gives the example of a bank (which he doesn’t name) that has survived the fallout from the crisis and a wave of industry consolidation, bought back its preferred stock, and restarted dividend payments to common shareholders. Now, with fewer competitors than before the crisis, it’s growing again but is still trading below book value with a low PE multiple.

Even though Kazakhstan’s economy is heavily reliant on the oil industry and the Russian economy, which explains why the stock market is still struggling overall, that doesn’t mean an investor can’t find companies that have been unfairly hit by the negative sentiment. Schwartz even sees some upside from the Kashagan oil field, which has been stalled for a decade but will eventually give a big boost to Kazakhstani oil production.

Investing in Slovenia during the eurozone sovereign debt crisis

In a similar vein, Schwartz says that he started looking for investments in Europe in 2011/2012, when other investors were worried about looming eurozone credit problems. He ended up investing in a Slovenian property-casualty insurance firm that was trading at just half its book value because other investors were too worried about the government’s debt problems to look for high quality companies. Since then he says the company’s market cap has grown from €350 million to €550 million while paying out €100 million in dividends.

Looking for strong companies that are being undervalued because of the eurocrisis was a successful formula for a number of value investors in recent years. And if Greece pushes the EU to another crisis after the election of the anti-austerity party Syriza, it could be a strategy worth keeping in mind for the future.