Der in den beiden Verwaltungs-Strategien SJB Substanz und SJB Stars enthaltene ECP Flagship – European Value Fund A (WKN A14YQK, ISIN LU1169207518) legte im dritten Quartal 2019 eine Konsolidierungsphase hin und generierte eine Wertentwicklung von -5,21 Prozent in Euro. Marktstratege Léon Kirch verfolgt in dem europäischen Aktienfonds mit seinem wertorientierten Investmentansatz eine streng an Value-Kriterien ausgerichtete, langfristig orientierte Investmentstrategie. Erfahren Sie in Kirchs FondsManager-Bericht, wie die ECP-Strategie im Detail performte und wie sie auf die wirtschaftlichen und politischen Entwicklungen der letzten Monate reagierte. Der aktuelle Quartalsbericht startet mit einer Marktübersicht, gefolgt von der Analyse der jüngsten Käufe und Verkäufe im Portfolio.
Zusammenfassung und Marktbericht
European equity markets had an overall positive Q3 2019 with a 2,6% return for MSCI Europe. The quarter was characterized by a calm July, a negative August, and a solid rebound into September. The MSCI Europe closes the quarter at the all-time-high. The quarter offered us several classical late-cycle phenomena. High volatility and some sector rotation. Momentum stocks have been flying high for a long time. When they stopped flying some of the beaten-down value stocks started to take off and performed well during the September rebound.
The sentiment on the stock market has been dictated by the perceived developments in the trade war debate between US and China. Late in the quarter the Brexit situation became ever more intensive. It seems as if all political negotiations everywhere in the world happens equally behind closed doors and on social media. All of this creates a mix of uncertainty and hopefulness having strong impact on the day-to-day movements in global markets across asset classes. In the long run political events are less impactful. It is important to stay coolheaded and direct attention and investment capital to companies offering prospects of solid long term returns. That is best achieved with a combination of low initial valuation and a sustainable business model.
Our strategy delivered a return of -5.21% during the quarter (ECP Flagship European Value Fund ( A-EUR share class). In August our small- and midsized companies came under new pressure as Mr. Market currently looks only at large caps. In the September rebound we performed better than the market as Mr. Market again had to realize that he was too hard on our companies during the August sell-off.
Most of our recently added investments are of defensive nature. The upside potential in our portfolio remains close to all-time-high, and we look ahead with high expectations. Whilst we wait for value to be recognized by Mr. Market, the companies in our portfolio continue to generate healthy cash flows they to pay us dividends, make investments or bolster already strong balance sheets. We have split the investments of our portfolio in two groups. The first group is one that we expect to deliver high and growing cash flows in any economic environment. This group is approximately 55% of the total portfolio including the cash we have ready for new investments. The second group represent 45% of the portfolio and is more of a cyclical character with companies currently priced for recession.
The 3 main positive contributors in Q3 2019 were Sanofi (Health Care, France), Ontex (Consumer Staples, Belgium), and Anima (Asset Management, Italy). The 3 main negative contributors were Matas (Consumer Discretionary, Denmark), Krones (Industrials, Germany) and Dürr (Industrials, Germany).
In H1 2019 Central banks in Europe and in the US have shown that they will stand ready to support the economy if the negative effects from the trade war spread through the economy. In September they delivered on their promise by lowering their interest rates and the European Central bank restarted their asset purchase programme. These actions are designed to keep interest rates lower for longer and to foster economic growth. We doubt that lowering interest rates from an already ultralow level will have any meaningful impact on the economy. However, the signal from Central banks is that they will do their best to support economies in a time when politicians seem more busy elsewhere. In our last quarter report we wrote about our belief “…there is an underlying significant shift towards value stocks looming as investors by the end of 2018 for the first time in long realized that growth and momentum stocks do not fly to the moon. This has awakened a debate where valuation of company cash flows has more importance”. The significant rebound early September of for example Banks, Materials, and Industrials was again a reminder of the value residing inside those sectors which have been out of favour for a very long time. We believe there is much more value to be unfolded and time will tell us when that happens. The only thing we can say with certainty is that our portfolio is full of companies trading at valuation multiples far below what the market historically has paid for them. Eventually, this will revert since the business models of those companies have not changed meaningfully.
Every day we are receiving many datapoints of earnings presented by companies. Sometimes these datapoints represent more or less fantasy earnings as they can be heavily influenced by accounting regulation or by the company’s wish to make earnings look better than they really are.
Every day we do our best to transform those accounting earnings into real cash flow earnings and focus on what is important and leave aside what is irrelevant for a value investor. This is what we base our valuation on. Only cash earnings bear real value to us.
Veränderungen in der Zusammensetzung des Portfolios
We continue to follow our investment process as we have done for many years. We do so regardless of the opinion of Mr. Market. Our investment horizon is oriented towards the long-term with an average holding period of 4 to 5 years. This is the time normally needed for the market to recognise the earnings power of an undervalued company and thus for the valuation gap between the stock price and the estimated intrinsic value to close. The investment process aims to identify companies with undervalued earnings power without any geographic, sector or market capitalisation considerations.
In Q3 2019 we have added two new companies to the portfolio and continued to build on our recently acquired companies. Two companies have been sold and for some we have reduced the position in order to fund the acquisitions of more appealing investment opportunities.
? BUY
We have bought ABB and Porsche Holding as we believe their current valuation is far below our estimated fair value. Both companies are based on strong brands and have staying power. ABB has also a business-simplification angle with significant value creation potential.
? SELL
We have sold Yara around the highest price the stock has seen in the last 10 years. Yara met our estimated fair value after multiple years of ownership and the price we got for our shares did not leave much room for error in their business transformation program. That made it an easy decision for us to sell.
One of our 2018 acquisitions was Atos in France. The company is one of the global leading IT services companies with a highly cash generating core business and hidden assets about to be spun-off to investors. Atos owns a big stake of another company called Worldline, which is a European leader in the fast growing and very profitable payment services market. In May, Atos gave to their shareholders some of the Worldline shares to unlock value. This increased the free float of Worldline and made the company more free to participate in the ongoing sector consolidation. Soon after we received our shares Worldline became a perceived take-over target in the ongoing M&A consolidation happening in the industry. The stock price naturally went strongly up on these rumour and we sold our shares. We do remain invested in Atos, and thereby indirectly in Worldline, as Atos still owns 27%. We believe it is just a question of time before Atos will give us more shares in Worldline which will unlock value for both Atos and Worldline shareholders.
