The letters with which the best Spanish fund managers explain to their clients why the Stock Market (and the world) has changed | Business

In times of social networks, the best Spanish managers continue to communicate with their clients through quarterly letters. In the latest correspondence, there are three issues that take up most of the space in the letters: the invasion of Ukraine, energy tensions and the monetary responses of central banks to out-of-control inflation. These are the main messages of four of the most renowned managers in the market.

Prudence and humility. In November 2015, Azvalor started. The beginnings were not easy for the ex-managers of Bestinver, but little by little profitability has returned to their funds. Despite the good times they are going through, in their last letter to clients they emphasize two keys for the future: prudence and humility. “Prudence that leads us to sell companies when they go up, a basic discipline that we have been executing for more than 20 years,” they highlight in the firm directed by Álvaro Guzmán de Lázaro. “And humility before the new paradigm in which fixed income assets, theoretically the safest that exist, have not been able to protect the purchasing power of the saver; And neither have the most fashionable companies (Amazon, Netflix, etc.), which accumulate very strong falls this last year!

The change of scenario in the market does not change the strategy value de Azvalor: “To know how much we are going to earn, we have to look at the starting level of the valuations”. According to this view, the lower the prices relative to the intrinsic value of an asset, the higher future profitability, and vice versa. “We have an attractive list of companies waiting to enter the portfolio when their prices are within range,” they explain to their investors. At the moment, the favorite stocks for his Iberia fund are Tubacex, Elecnor, Técnicas Reunidas, Prosegur Cash and Logista. For this quarter they have incorporated some new companies such as Atresmedia and Catalana Occidente. For its international fund, the bet is focused on Arch Resources, Consol Energy, Barrick Gold and Whitehaven Coal. The new additions to the international portfolio have been Ferrexpo, Iamgold and Central Puerto.

The revenge of fossil fuels. Two themes focus the last letter from Cobas, the manager of Francisco García Paramés: inflation and energy transition. In the case of rising prices, the so-called Spanish Warren Buffett does not see a short-term solution: “This would involve withdrawing the money injected into the system from the system. For this, a political will is necessary, which does not seem very firm at the moment”. In this inflationary framework, a correct strategy, in his opinion, is to own real assets, “which we understand will reasonably maintain the purchasing power of our savings, and more specifically shares of companies that are trading at attractive prices.”

In the case of energy imbalances, Cobas warns that they have been aggravated by the invasion of Ukraine. “While in recent years the most important factor in making investment decisions has only been the energy transition, we believe that now it will have to be combined with security of supply,” they explain. In this scenario, some of the energy sources that only a few months ago seemed out of the equation (oil, gas and nuclear) “regain their importance as necessary transition sources, which in the current situation require greater investment.” For this reason, in recent quarters Cobas has maintained a high exposure to the energy sector, mainly in liquefied natural gas infrastructures (Golar LNG, Exmar, GasLog), oil and gas producers (BW Enerty, Cairn Energy, Enquest, IPCO, Kosmos ), service providers (Maire Tecnimont, BW Offshore, CGG) and oil and gas transport infrastructures (International Seaways, Energy Transfer and Teekay).

Risk of implosion in China. Javier Ruiz, director of investments at Horos AM, uses the movie Interstellar to summarize what is happening in the markets (and in the world). “There are weeks in which it seems that nothing happens and they fly by, and others in which absolutely everything happens, as if they were years,” he argues. Among the hot spots that accumulate on managers’ screens, Ruiz places special emphasis on his latest letter to China. “The country is experiencing its worst economic scenario since it began a flight from the communist model to current state capitalism due to regulatory intervention in sectors such as real estate or technology, as well as measures to combat the current wave of the coronavirus” , writes. In his opinion, the Chinese president, Xi Jinping, believes that it is time to redistribute the wealth accumulated in recent decades, which is why he has not hesitated to intervene in the most relevant sectors of the country. “This excess of control may be leading, precisely, to the system imploding or, at least, to escaping the rigid control of the Communist Party,” he adds.

He knows in depth all the sides of the coin.


Two other flanks that contribute to the pressure that investors are experiencing are the geopolitical and the monetary. “The invasion of Ukraine is contributing to increasing the problems of the fragile Western energy system, highly conditioned by the disorderly and forced transition towards renewable sources in which we have been immersed in recent years. On the other hand, monetary tightening, especially by the Federal Reserve, is having an impact on the evolution of fixed income and on those companies that discounted in their valuations cash flows far removed from the present time, in the case of the businesses that emerged during the pandemic or many of the technology companies,” argues Ruiz. Horos has sold all its positions in the metallurgical coal producers Ramaco and Warrior Met Coal, after their good stock market performance, and has entered the capital of the Dassault aviation group and the Petershill financial institution. In the Spanish portfolio they have incorporated Applus and Ecoener.

imbalances before the war. Iván Martín, head of investments at Magallanes Value Investors, explains in his last letter that the invasion of Ukraine has exposed “certain imbalances that had been brewing since before it. Therefore, its consequences do not imply so much a sharp and sudden change, but rather an acceleration of some of the risk factors that we alluded to in past letters”. Among other factors, Martín believes that the most striking are inflation, “poor planning in the transition strategy and energy security” and its effects on the price of energy, the “systematic undervaluation in capital-intensive industries of primary necessity ” and, in general, “certain political decisions that have led certain regions, especially Europe, to a situation of energy dependence and economic fragility”. Magallanes has taken advantage of the falls in the European banking sector to give more weight in his portfolio to stocks such as UniCredit, Commerzbank, Eurobank, Savencia and Covestro.

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