AzValor Q3 letters to investors
These guys have very good long term track record .. value fund is effective spin out of Spanish fund Bestinver .. returned 16% per annum over 25 years .. managed c$8.4b..
See 85% upside in international fund..
Have had massive swing at commodities…
In Q3.. sold “a bunch of companies after making good returns (Samsung, DEA, FFP, Thyssen, Savills, Amsterdam Commodities, Dassault Aviation, Fairfax India, Ryanair, Vivendi and Via Varejo). Those sales have permitted us to increase the weight of some of our other invesments like Cameco, Grupo México, Norilsk Nickel, Consol Energy and Eurocash, as well as to buy an “old friend”, Range Resources.”
“The portfolio is highly concentrated as the 10 biggest investments weigh 57%, and the 20 biggest comprise 80% of the NAV. We remain highly exposed to commodities, with a total weight in this sector of 63%, split into copper, nickel, uranium, gold, oil and gas; the remaining 32% is invested in a heterogeneous group of companies whose common denominator is, in our view, an evident undervaluation relative to their earnings power, as reflected by the prices at which we are buying their stock in the market.”
“… the companies which are part of our International portfolio have a lower probability of being a victim of disruption (a copper mine, for example, is very difficult, and ever more expensive, to replicate) and, more importantly, trade at half the multiple of the market. With a portfolio at 8x earnings, if these risks are not totally eliminated, they are dramatically reduced.
.....
Letter
Many believe that earnings falls and valuation multiples contraction is a “combo” which only happens during recessions. We disagree. During recessions companies’ earnings can easily fall 40% and valuation multiples retreat to around 10x. Under such scenario, Company A’s value would be 10x66=660 or a fall of 65%!
In light of this, some argue that the only protection is to buy solid and resilient companies with the ability to better weather the vagaries of the cycle. However, we are today witnessing an acceleration of the fall of barriers to entry (the famous “disruption”) which have historically protected these businesses. This is why we believe that being confident that the present is the best guide to project the future is especially dangerous these days.
Although we do not pretend to be exempt from such risks, the companies which are part of our International portfolio have a lower probability of being a victim of disruption (a copper mine, for example, is very difficult, and ever more expensive, to replicate) and, more importantly, trade at half the multiple of the market. With a portfolio at 8x earnings, if these risks are not totally eliminated, they are dramatically reduced.
