Sarnia Asset Management

In charge of manager & fund selection for emerging multi-manager platform aimed at serving private high-net-worth investors and family offices, with a strong focus on identifying niche funds.

Particular focus on differentiated funds from nascent managers. High performance 📈 and real skin in the game beats scoring well in a thousand criteria box-ticking ☑️ exercise!

FCA Approved Person (CF30 (Customer dealing) function) for Sarnia Asset Management (UK) Limited in its capacity as an Appointed Representative of Varramore Partners.

Sarnia Asset Management is building a platform that connects high-net-worth investors to high-performing niche funds. Operating from Guernsey, GFSC-regulated Sarnia Asset Management can address investors in more than 100 countries representing over 80% of the world’s wealth. Guernsey is not just a well-respected jurisdiction for registering funds, but also offers more flexibility to design funds around customers’ needs.

👉Contact me by email: harald@sarnia-am.com

Partner

Max-Berlinicke-Erben family office

⚓️ Investment style: Patient, go-anywhere, non-benchmarked with a value and special situations bent, aiming to generate attractive positive real returns over the medium-to-long term, whilst keeping portfolio-wide drawdowns to an acceptable level. 
⚓️ Investment approach: Preference to access opportunities through specialized managers globally, continuing my lifelong hunt for that elusive animal called manager alpha 🦈 🐠. Via piggyback-/co-investments, I also enter some of the highest conviction positions of my managers directly.
⚓️ Investment vehicles of choice: Funds (institutional share classes only) and listed investment trusts/permanent capital vehicles (capitalising on at times very wide discounts to NAV) rather than segregated mandates or LPs. 
⚓️ Investment philosophy: I am a strong believer in the "volatility laundering" criticism that AQR's Cliff Asness leveled against asset managers in private markets. So any opportunity in infrequently marked/illiquid/private assets needs to stand out for me to consider it for portfolio inclusion. I can handle market volatility but I can’t handle fairy-tale marks that all of a sudden lose their magic when they face reality!
My mottos „Better vaguely right than precisely wrong“ and „Skate to where the puck is going, not where it has been“ have served me well. 

🚦 For counterparties: Please submit info packages for new investment proposals to: hhb.maxberlinickeerben@gmail.com.
Thank you.

Multi-Asset Investor & CIO, Owner, Berlin

CFA Institute

I have been increasingly involved in supporting the CFA Program through regular volunteer and consulting work for the CFA Institute, Charlottesville, VA since 2011.

I am also part of the CFA Institute Professional Conduct / Compliance Connection Program (since 2017) where I focus on the German-speaking market, working closely with CFA Institute's Professional Conduct investigatory staff at CFA Institute HQ, Charlottesville, VA.

CFA Institute is the premier global association for investment management professionals. Since its founding over 75 years ago, CFA Institute has been committed to developing and upholding professional excellence in the global investment community.

Active Volunteer & Consultant, Charlottesville, VA

Scope Group

Within Scope's market leading alternative investments team, I contributed my expertise over nine years in the following areas:
- rating of asset managers in real assets (especially real estate, renewables, private equity & VC, transportation), debt funds, alternative credit, liquid alternatives and structured products/certificates
- participation in on-site management interviews of asset managers
- participation in rating committees (including in the capacity as Chair)
- production of rating reports and sector research
- carrying out of investor, issuer and arranger outreach, presenting and explaining Scope’s analytical approach
- selection of recipients of the annual Scope Awards

Scope is the leading European provider of independent credit ratings, ESG analysis and fund research. Scope offers an alternative view to the North American rating agencies in the assessment of financial and non-financial risks and ESG impacts across a wide range of asset classes. Its growth strategy is focused on ensuring institutional investors have fast and easy access to accurate, comprehensive and timely analysis and ratings through innovative platforms and products. The firm has more than 300 employees across Europe in its offices in Berlin, Frankfurt, London, Madrid, Milan, Oslo and Paris.

Director, Alternative Investments, Berlin

Asset Management Consulting (Credit & Alternative Investments)

Provision of:

- consultant services in the areas of structured credit / fixed income, asset manager evaluation & selection and global alternative investments.

- expert witness services, particularly in cases relating to the fallout from the financial crisis (CDOs, ABS, structured finance securities, investment vehicles).

Mandates included:

- Landesbank Berlin AG, Berlin, advisory work in relation to the launch of a capital guaranteed credit fund / structured product, 2009
- SCDM GmbH, Berlin, see separate entry, 2011-2012
- T.R.U.ST. GmbH (tax advisory and audit services, established in 1989), Berlin, provided investment expertise to voluntary disclosure leading to tax amnesty mandates, 2013-2014
- CFA Institute, Charlottesville, VA, USA, see separate entry, since 2011 and ongoing

Consultant & Expert Witness, Berlin

SCDM

Setting up origination & client services in the newly opened Berlin office.

SCDM offers a leading web-based risk monitoring and cashflow analytics tool (ABSGate® / Cascade®) for clients involved in structured credit products, placing a particular emphasis on transparency, versatility, accuracy & timeliness.
Clients of the firm come from a wide range of business areas such as banking, asset management, alternative investments, insurance, accounting, risk management advisory and news providers. 
The company was subsequently purchased by Frankfurt School of Finance & Management before being acquired by Moody's.

External Consultant, Berlin

New Bond Street Asset Management LLP

One of six founding partners of the now defunct London-based absolute return credit fund manager which specialized in the investment grade and crossover space across sovereign, corporate, ABS and financial institution exposures. Backed by Kaupthing Bank, the largest Icelandic bank at the time.

€ 8 billion of assets under discretionary and advisory management for institutional investors and a total staff of over 30 at the peak in 2008.

Co-Head of Structured Credit investments.

Manager of two CDO of ABS, New Bond Street CDO 1 & 2, USD 1 billion each.

Co-Manager of New Bond Street Diversified Credit Strategies, a Dublin-based long-short credit hedge fund.

Partner & Senior Portfolio Manager, London

In charge of distributing credit products (structured credit products such as CDOs, CLOs, CSOs / CDS / bonds) to institutional clients in Germany, Austria and Luxembourg. Covered over 100 accounts. Clients were banks, insurance companies, pension funds and asset managers.

Vice President & Director, Credit Product Sales, Germany/ Austria/ Switzerland/ Luxembourg, London

Bankgesellschaft Berlin (now: Landesbank Berlin)

Managed a large structured credit portfolio (in excess of € 6 billion) for the bank's treasury book and ABCP conduits.

The bank was one of the first and most significant structured credit investors in Europe with a sizeable ABS staff in three locations (Berlin, London, Dublin).

Director, Head of Structured Credit Investments, London

Bankgesellschaft Berlin

Assistant Director, Deputy Head of Structured Credit Investments, London

Senior Analyst / Assistant Director, Securitisation, London

Junior Analyst, Securitisation, Berlin

💸 Opinions are my own. My posts focus on the topics of manager selection, special situations investing and asset allocation.

Experience as an active investor of 30+ years. Worked as partner & lead PM at a London-based absolute return credit boutique (€8bn AuM & 30+ staff) I co-founded as well as for different banks in London, New York & Berlin. The last 9 years I spent at a large European fund rating agency.

Multi-asset expert with background in the complicated stuff...structured credit, hedge funds & alts. Established track record in asset manager selection, credit & fund analysis, portfolio & risk mgt, asset allocation, fund & asset manager ratings. Deep investment expertise across the full asset class spectrum.

Conducted over 400 interviews of asset managers & HFs throughout my career, in many cases followed by on-site due diligence visits in the US & Europe, the majority as portfolio manager and, 2014-2023,  as ratings analyst of Scope Asset Management Ratings.

Acted as lead PM of two public CDO of ABS transactions, New Bond Street CDO 1 & 2, $1 billion each, as well as co-manager of New Bond Street Diversified Credit Strategies, an absolute return credit hedge fund with €50 million of investor capital and a notional of up to €600 million (max. 12x leverage, invested in corporate CDS/indices, ABS, CLOs).

Extensive global network & high cross-cultural competence gained during working & studying in 🇬🇧 & 🇺🇸 for 12+ years.

Access to a large proprietary database of past asset manager performance data & marketing material.

Provision of expert witness services, particularly in cases relating to the fallout from the GFC (structured credit/CDOs).

Fully qualified securities advisor & wealth manager.

Active volunteer & consultant for the CFA Institute since 2011.

📙Avid reader & podcast listener. 🪤Patient, disciplined, intuitive & confident investor. My mottos „Better vaguely right than precisely wrong“ and „Skate to where the puck is going, not where it has been“ have served me well. 📈

Specialties: 
Asset manager selection & ratings, multi-asset investing, wealth management, institutional investmt mgt, asset allocation, alternative investments, fixed income & credit, structured credit, CDO management, CLOs, provision of expert witness services, securitisation, hedge funds, fund of funds, multi-manager funds, UK investment trusts, permanent capital vehicles, debt funds, AIF, liquid alts, REITs, deep value asset plays, contrarian & special sits investments, private equity & VC, infrastructure debt & equity, inflation linkers, absolute return.

When growth stocks turn into value stocks!

Happy Friday! 😄

PS: This cartoon was shot 📸 by my colleague Swen Lorenz at the SOHN Conference in New York this week. It featured in David Einhorn‘s 🦄 presentation.

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#humour #humor

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My posts focus on the topics of manager selection, special situations investing and asset allocation. And typically Fridays, you’ll see a humorous post like this one.

Harald Berlinicke, CFA 🍵

At Ranmore, we think Value investing is the best way to “play AI”

The common thinking is the Mark Twain argument, that - “in a gold rush it’s a good time to be in the picks & shovels business”

And since Nvidia’s chips and Microsoft’s OpenAI are deemed the AI “picks and shovels”, that’s how investors are getting exposure

BUT we think this only holds true, if:

a)      you’re unsure who’d find “gold”

b)     you pay a fair price for a “pick and shoveller”

If you knew who'd find gold, wouldn’t you rather own THAT business? 

So, who is finding “AI gold”?

Well, according to a Salesforce Survey in 2023, “82% of business leaders say generative AI will lower overall business cost and 80% say generative AI will increase revenue.”

ie. most companies

And if AI can help cut costs, then the real beneficiaries could be companies with low profit margins

Think about it - if operating margins are only 2%, then costs are 98% of sales 

That’s a lot for AI to work with – cutting costs by 1% of sales could increase earnings by 50% in this example

Except most Quality / Growth portfolios don’t own businesses with 2% operating margins...

Take the food retailers for example

Those with loyalty card programs have vast amounts of data -that’s “AI gold”

They know:

- what we buy 
- when we buy
- where we buy 
- how much we pay

They know how our buying patterns change over the month, our response to promotions, and even the weather at purchase 

AI is helping them drive revenue growth with personalised promotions and dynamic pricing

Which improves their demand forecasts lowering wastage & logistics costs

And better inventory control improves cash flow

Now consider banks that many Quality & Growth investors also shun

In contrast to Amazon which only knows our discretionary spend on Amazon

But banks know our income AND every $ of our spend

on EVERY “platform” - Real “AI gold”

So banks are using AI to:

more accurately price additional credit - increases revenue

improve customer service via Chatbots & improve realtime fraud detection -  lower costs

Maybe the market is waking up to this because

Kroger’s share price is up 25% this year, beating Amazon +19% 

The MSCI World Banks Index is up 13% this year, beating Microsoft +12% 

Meanwhile, Apple and Tesla are down 11% and 30% respectively…

Remember too that Nvidia’s largest customers are the large tech companies 

So Nvidia’s revenue is THEIR capital expenditure...

Last quarter MSFT’s capex rose 58% y/y, Alphabet’s rose 45%

So if you think Nvidia’s revenue will still explode, you better start worrying about their customers’ “free” cash flow

DISCLOSURE
Ranmore Global Equity Fund holds some select banks and food retailers, including Kroger

And none of the "Mag 7"

The content of this marketing material is provided for information purposes only and is not advice
 
Past performance is no guarantee of future performance

#valueinvesting
#investing
#numbersnotnarrative
#MarketingCommunication

🪖 How World War II can help us with survivorship bias in investing! 💸 

During World War II, statistician Abraham Wald was tasked with reducing the losses of bombers to enemy fire.

He therefore investigated the damage to the aircraft returning from missions.

The aim was to reinforce the areas where most of the damage had occurred.

The first impulse would be to amplify where the most impacts occurred. So these are the areas with the red dots on our plane.

But what about the areas that never seem to have been hit, like the cockpit or the drivetrain?

👉Of course, there were hits there too, but these planes never came back.

This is a classic example of survivorship bias. 

✅Learning: Statistical analysis is useless if the dataset is biased.

And that can be applied to the investment world as well. 

🚨The performance of fund peer groups is often presented much better because the funds that have been liquidated or merged are not taken into account.

🚨Trading strategies very often deliver far too good results in the backtest because the price data set used does not take into account the stocks that have disappeared from the stock market.

That's why you should always ask yourself one question when researching:

➡️ What data was used?

This post was done in collaboration with Jörg Mayr, CIIA. If you are a German speaker and interested in great investment-related content, I suggest you follow him!  

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement

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It‘s been quite a journey! 🧳

When I started what I call my daily investment blog on LinkedIn some 15 months ago, I had no idea what journey I would embark on. 

3,000 followers were my starting point.

Today, as I passed the 20,000 mark, I am in awe with the statistics behind the community that I am building. As I know that most of my followers love numbers, here we go: 😌

4,898,136 impressions
38,469 engagements (reactions & comments)
20,897 profile views
(all over past 12 months)

836 search appearances (over past week)

Top post:
189,130 impressions 
1,454 engagements

Top geographies of my followers:
14.0% London 🇬🇧 
4.8% New York 🇺🇸 
3.4% Frankfurt 🇩🇪 
2.4% Berlin 🇩🇪 
2.3% Paris 🇫🇷 

Top industries:
39.2% Financial Services
12.2% Investment Management
8.2% Banking
3.8% Investment Banking
3.6% Business Consulting & Services

Seniority:
37.5% Senior
13.3% Director
12.2% Entry
6.4% CXO
6.1% VP

Job titles:
3.2% Managing Director 
3.2% Portfolio Manager
2.8% Founder
2.2% CEO
1.5% Co-Founder

Most importantly, I have found #linkedinbuddies with whom I am in touch regularly on the platform and some of whom I have already met in real life! (As you may have noticed from the dedicated posts after each get-together…see in the comments.)

So what started as a way to earn street cred with my boys 👨‍👩‍👦‍👦 at home (they don’t fully understand what I do for work but they have taken note of "daddy's followers"!), has turned into something pretty amazing and much larger than I had envisaged. 

Can’t wait to continue making new connections here, and exchanging views & comparing notes 📝 with fellow investors!

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement

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What's the value of true long-term relationships? 
By that I mean having known people for 10, 15 or 25 years. 

I was reminded of this when meeting up with Jens Nordvig.

Jens and I first met in London at the beginning of this century. 👀🕰️

His research firm, Exante Data, is renowned the world over. Half of the world's top 100 institutional investors pay him five- and six-figure amounts per year to get access to his work. 💻 📈📉

Having known him for so long, I knew instinctively that his latest brainchild was worth following. Jens created a new start-up three years ago. I have been following it from inception. 🔎

MarketReader is a tool that explains what is happening in markets – in real time and in an automated way. It promises its users Bloomberg quality data and insights, but at a fraction of the cost ($100 per month instead of $2,500 per month). It also doesn't require you to do a diploma in using one of these friggin' Bloomberg terminals. The aim is to democratise access to superior investment information. 😮

Crucially, it is NOT a purely AI-based system. It uses AI as a layover, but that's just one component. In layman's terms, it's a system heavily based on proprietary data with AI just adding another component to it. 🤓

After three years of watching from the sidelines, I recently had a sense that MarketReader is about to take off. Which is why I got Jens to talk to me about his plans for this tool and why it's useful for investors. 

There are 400-500m active investors in the world, if not even 1bn. I'm extremely confident that Jens will manage to scale up MarketReader to something global. In fact, as I now know, the "Big Boys" have been in touch with him lately. His start-up firm could be about to sign some major enterprise deals, e.g. with brokerage firms that want to offer next-level information and insights to their clients.

Jens will also shortly reveal new investors, "including one of the most well-known personalities in equity strategy." 🥷

If you are an investor who spends a lot of time following markets and analysing developments, this is a tool you should try out. 

How can you learn more? 🧐

Our 30-minute conversation will be published both as video and transcript on Undervalued-Shares.com this coming Friday. No paywall, no registration. 😀

👉 Follow this on LinkedIn, or sign up to the "Weekly Dispatches" email alert on https://lnkd.in/eTvkXNiE.

I am pretty sure that the likes of Wall Street Journal and Financial Times will report about MarketReader before too long. I wanted to beat them to it.

You've read it here first! 👊

49% of 14,000 CFA Level III candidates passed 🥳 the exam in February 

As Bloomberg reports:

The pass rate for the final level of the
chartered financial analyst exam stayed below the decade average, while first-time test takers had a higher success rate than those who chose to delay testing.

In February, 49% of candidates passed the Level III test, up from 47% for those who sat for the exam in August and just above the 48% of passers in February of 2023, the CFA Institute said Thursday. Still, the results remain below the 52% average for the past decade, according to historic pass rates.

The institute also broke down the difference between those who took the exam for the first time versus those who took it after studying and delaying their exam for various reasons, including Covid or other disruptions. First-time testers scored above the average pass rate, at 56%, while those who had deferred the exam had an average passing rate of 36%, the institute said in a statement. Level I test-takers showed similar divergence in their success rate based on deferrals.

“We again urge all candidates to try to remain on track to give yourself the best chance for success,” Christopher Wiese,
managing director for education at the institute, said.

The latest results show an improvement from historically low pass rates across all levels of the CFA exam set in 2021.

Almost 14,000 candidates sat for the Level III exam in February, which was administered at 448 testing centers around the world.

Historically, the institute offered the exam on paper, but transitioned to computer-based testing during the pandemic.

To become a charter holder, a candidate must pass all three exams and meet certain work-experience requirements. Last week,
Level I candidates got their results, with a 44% success rate for those who took the exam in February, up from 35% in the
previous testing period.

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#wealthmanagement #cfaprogramm #cfa #cfaexam #cfalevel3

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🙄Private credit: No alpha left on the table after fees and adjusting for risks, study shows

Private credit offers no alpha after fees is the eye-opening conclusion of three academics in a new study 🔬 released by the National Bureau of Economic Research.

“Once you adjust for the risk, investors basically are getting the amount they deserve, but no more" according to Michael Weisbach, a finance professor at The Ohio State University who co-wrote the research with Isil Erel and Thomas Flanagan.

As Bloomberg writes:
"Behind the research is complex math to try to untangle the alpha part of a return that’s down to skill, and the beta part that might just come from stumbling into a bull market. While comparing stock pickers to a market benchmark like the S&P 500 is standard by now, it’s not obvious what the right yardstick is for private-credit funds, which make idiosyncratic and opaque loans to a wide array of companies. 

To be clear, private credit could still be a welcome source of diversification as long as investors can tolerate its lower liquidity.

The three economists dissected MSCI Inc. data on 532 funds’ cash flows, covering their incoming capital and distributions to investors. They compare the industry’s performance to stock and credit portfolios with similar characteristics, whose fluctuations end up explaining the majority of private-credit returns. The study makes the case that these private credit funds also carry some equity risk, since around 20% of their investments contain equity-like features such as warrants. 

After accounting for those risks, they find that there’s still alpha left on the table — which only vanishes once fees paid to these managers are deducted.

“It really is the first attempt to my knowledge of trying to look at private credit using both credit and equity benchmarks,” said Tobias True, CFA, FRM, a partner at Adams Street Partners. “There is so much variety and diversity in the loan structures with the equity components and different levels of leverage. That’s what really makes it challenging for us to separate alpha and beta.” 

The paper’s conclusion might resonate with some investors, who are starting to question the hefty costs as interest rates rise and competition for their dollars intensifies. Meanwhile, default risks are also rising as tighter monetary policy squeezes corporate borrowers. With fund-raising now slowing after a few years of rapid growth, some private credit funds have started to waive fees to key investors. 

True cautions that until the industry faces its first downturn it may be hard to determine real alpha: 'Maybe it just raises awareness that there’s additional risk and the excess performance wasn’t really worth it in some cases.'"

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #wealthmanagement #privatecredit #privatemarkets #alternativeinvestments

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CFA Level 1 pass rate rises to 4️⃣4️⃣% — CFA Institute urges candidates not to delay exam (as this will decrease your chances of passing)

As Bloomberg reports:
"The pass rate for the first level of the chartered financial analyst exam jumped above its historic average to 44% — though test takers who’d already delayed their exam had a much lower success rate.

In February, 44% of candidates passed the Level I test, up from 35% for those who sat for the exam in November and 37% in August, the CFA Institute said Thursday. That’s above the 40% average for the past decade, and the lowest pass rate in 2021 when exam as performance was first hurt by test-taking deferrals following the Covid-19 outbreak.

⚠️For the first time, the institute broke down the difference between those who took the exam for the first time versus those who took it after delaying their exam for various reasons, including Covid disruptions. First-time testers scored significantly above the average pass rate, at 5️⃣2️⃣%, while those who had deferred the exam had an average passing rate of 2️⃣8️⃣%, the institute said in a statement.⚠️

'Given the stark difference in exam outcomes, we urge candidates to stay on schedule where possible and devote the requisite study time,' Christopher Wiese, managing director for education at the institute, said. 'Preparation remains the key predictor of exam success.'

 The CFA, which is offered several times a year and can lead to new job opportunities and higher salaries, has undergone changes in recent months. The Level I exam administered in February was the first time candidates had access to an updated curriculum, which the institute says is designed to make learning more efficient and provides more opportunities for practice.

'Exam difficulty remains constant across all CFA exams, and we are pleased to see more candidates achieve the passing standard and a bounce back in the overall pass rate for Level I candidates,' Wiese said.

Almost 17,000 candidates sat for the Level I exam in February, which was administered at 471 testing centers around the world. 

Historically, the institute offered the exam on paper, but transitioned to computer-based testing during the pandemic.

Those who took Level III of the exam in February are scheduled to receive their results next week, the institute said."

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement #cfa #cfaexam #cfaprogram #cfalevel1

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🤕 Investors getting fed up with poor performance of UCITS hedge funds! 

🔝 hedge fund reporter Nishant Kumar (Bloomberg) with a great update on a product category that has gotten a lot of flak 💣 in recent years — rightly so! — due to massively underperforming the master funds they were supposed to copy:

"Arriving at a conference in Paris in 2017, M-Yutaro R. was surprised to see unfamiliar faces. He’d tracked alternative UCITS for a decade at that point, and usually he’d know pretty much everyone who took the time to attend these events. 
'They were largely fixed income investors chasing high yielding alternatives,' he said. 'That makes you think, some of these guys perhaps didn’t fully understand the strategy.'

Looking back, that was the golden era for alternative UCITS — a structure used in Europe as a retail-friendly alternate to hedge funds. Total assets hit an all-time-high of around $433 billion at the start of 2018 according to research by Kepler Absolute Hedge. Rubio attributes a significant proportion of the rise to these more transient investors looking to stash money while interest rates were near-zero.

💡The industry has since been in free-fall. Hedge fund strategies in general suffered several years of outflows, and UCITS face tighter restrictions on leverage, concentration and short positions than their Cayman Islands cousins, as well as lower returns. More recently, higher interest rates have washed out some of their former investor base.

'This is one of the troughs for the industry,' said Rubio, who is head of UCITS research at International Asset Management Ltd. 'Partly driven by performance as some of the funds didn’t deliver what investors were expecting.'

Despite fees on many UCITS funds being similar to traditional hedge funds, data from investment firm Aurum show the latter to be more effective in handling larger volumes of assets at higher Sharpe ratios — a measure of a fund’s returns against its level of risk.

UCITS offer clients flexibility to invest smaller amounts and withdraw cash on a regular, often daily, basis. This opens the door to customers who would struggle with hedge funds’ long lock-up periods and multimillion-dollar investment requirements. There is plenty of overlap, with hedge funds offering their own UCITS.

⚠️ The industry lost $38 billion last year, according to Kepler’s research, bringing total assets to $240 billion — slightly more than half the 2018 peak. UCITS funds actually improved their performance last year, but the 4.3% average return still fell below the cash rate."

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement #hedgefunds

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Partner – Manager Selection | Multi-Asset Investor | CFA Institute Volunteer & Consultant | Follow me 🛺 for my daily posts on investing

Have Emerging Markets equities reached compelling value now? 🐅 🧱 

Here is the summary of an excellent 51-page presentation Schroders just published. I have included key slides from it in the carousel 🎠 below.

EM equities returned 5% in February, outperforming developed markets (DM) for the first calendar month since September 2023. A rally in China, the best-performing market over the month, supported gains; but will it last?

▶️ EM continues to lag DM YTD, with 2023 performance trends continuing; momentum is the best-performing factor.
DM performance underpinned by the 🇺🇸, while 🇨🇳 remains a drag on EM YTD, despite the recent rally.

▶️ EM equity valuations are close to the historical median on 12-month forward price-earnings (P/E) and a price-book
(P/B) measure, and outright cheap on dividend yield.

▶️ EM is cheap versus developed markets (DM). On a 12m forward P/E basis, the discount is close to the largest seen over the last 20 years.

▶️ On a standardised composite valuation measure most EM markets ex 🇮🇳, and on certain measures 🇰🇷, are cheap versus their own history.

▶️ A decade of US 💵 appreciation has weighed on EM equity returns. Most EM currencies have depreciated in real terms, implying emerging value, although the extent varies significantly.

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement #valueinvesting

👋 Follow me by tapping the bell 🔔 on my profile & you'll be notified when I post. 💸

Schroders on Emerging Market Equities_March2024

BREAKING NEWS: Goldman Sachs says it's time to take tech profits and invest in cheaper stocks (🛢️& 🇯🇵)

This just hit the Bloomberg screen:

Goldman Sachs Asset Management is skimming off some of its profits from high-flying technology shares and putting the money into cheaper companies. 

The firm believes tech shares will come under pressure and prefers areas like energy and Japanese shares, according to Alexandra Wilson-Elizondo, co-chief investment officer of multi-asset solutions. In her view, the US economy is on track for a soft landing, but there are plenty of risks that could change the trajectory. 

“We like taking profits on technology and moving toward other sectors,” she said in a phone interview. 

In the tech industry, “the risk-reward profile is skewed to the downside,” she added. “While we still believe in being long equities and having them in the portfolio, we think that there are some more attractive opportunities to access.” 

Returns among the Magnificent 7 stocks have already started to diverge. While NVIDIA Corp. has soared 72% this year, others haven’t fared as well. Apple Inc. shares have struggled due to weak demand for iPhones in China, and Tesla Inc. is down 30% year-to-date on concerns over electric vehicle demand. 

Goldman Sachs Asset Management, or GSAM, is holding an overweight position on energy shares as a hedge against inflation and geopolitical risks, said Wilson-Elizondo. So far this year, it’s been a good trade. S&P 500 oil and gas companies are up 1️⃣6️⃣%, compared with an 1️⃣1️⃣% gain for tech shares. 

💡She said they’re still cautious on utilities and REITs, as well as small-caps because of their sensitivity to high-interest rates. Even so, some small-caps are attractive because of their cheap valuations and a few may be takeover targets for fast-growing AI companies. 

➡️“An active manager can add a lot of value in this segment of the market,” she added.⬅️

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement #assetallocation

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Make sure you understand the motivation of your employer behind random drug testing… 

Happy Friday! 😃

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#humour #humor

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My posts focus on the topics of manager selection, special situations investing and asset allocation. And typically Fridays, you’ll see a humorous post like this one.

📉The most dramatic stock crash in history: This Chinese 🇨🇳 cement maker is a strong contender!

Bloomberg looking at the factors behind the 9️⃣9️⃣% share price collapse of China Tianrui Group Cement Co. on the Hong Kong stock exchange which occurred in the final 1️⃣5️⃣ minutes of Tuesday‘s trading session! 

"Based in the central Henan province, Tianrui’s stock plunged 99% to about HK$0.05 Tuesday, cutting its market capitalization to HK$141 million ($18 million). During the selloff, about 281 million shares, or a third of the firm’s free float, changed hands. Of that amount, more than 80 million shares were traded during the final few minutes of the session known as the closing auction.

Tianrui’s abrupt and dramatic stock rout is a reminder of the risks associated with obscure Chinese firms with a high concentration of shareholding and those that engage in financing practices such as using shares as debt collateral. The loss-making company’s woes also come at a time when an unprecedented housing crisis is causing increased stress among the country’s property developers and construction firms. 

'When there is a relatively large selling order, it is easy to trigger panic since there are not enough buyers,' said Steven Leung, executive director at UOB Kay Hian in Hong Kong, adding that penny stocks are prone to sudden plunges given thin liquidity. 'It could also come from margin calls if the major shareholder pledged the stocks.'

Tianrui’s controlling shareholder Li Liufa and his spouse jointly own approximately 70% of the company, according to a filing in January. The cement producer also announced at that time that it pledged 97 million shares, or 3.3% of its total, to secure a 12-month loan of up to 166.5 million yuan.

Tianrui swung to a net loss of 634 million yuan ($87.7 million) last year, from a profit of 449 million yuan in 2022. It cited weak demand resulting from China’s property downturn, intensifying market competition and high raw material costs as reasons.

Listed in Hong Kong in 2011, the company has an annual cement output capacity of about 58 million tons, with its business primarily focused on central and northern China, according to its official website. It also said its products were used in major domestic infrastructure projects such as high-speed rail lines."

🤞May everyone of my followers be spared of such single stock investment in their portfolios 💼! 

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement #equities

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BREAKING NEWS: UK 🇬🇧 small cap equity index facing extinction 🦕 

Bloomberg with an 👁️ catching news story:

"An index of UK small-cap stocks will cease to exist by 2️⃣0️⃣2️⃣8️⃣ if the current level of takeover activity persists and the initial public offering market fails to rebound, London stockbroker Peel Hunt Ltd warned.

The number of companies listed on the FTSE Small Cap Index, excluding investment trusts, fell to 1️⃣1️⃣4️⃣ at the end of 2023 from 1️⃣6️⃣0️⃣ at the end of 2018, Peel Hunt Head of Research Charles Hall said in a note to clients.

'The pace of de-equitization is relentless,' Hall said.

Firms on the small-cap index had a combined market capitalization of just £29.4 billion ($37.0 billion) as of Tuesday’s close, barely half of its 2018 peak of about £57 billion, data compiled by Bloomberg shows. 

The slump has been partly driven by takeovers as beaten-down valuations entice bidders, and the trend has continued this year. 1️⃣2️⃣ British companies received buyout offers in the first quarter of 2024 alone, Peel said. ⚠️

Meanwhile, new additions to the market have been minimal. Companies raised just £817 million on the London Stock Exchange in 2023, the least since 2009, according to data compiled by Bloomberg.

The UK capital’s listing woes have not been limited to the small-caps. Larger firms including Ferguson Plc and CRH Plc have shifted their primary listings to New York as they hunt for higher valuations. Analysts at Deutsche Bank AG on Tuesday predicted that mining company Glencore Plc could be the next big company to reconsider its UK listing. 

Peel Hunt, meanwhile, called for additional measures to improve fund flows into the UK market, including addressing the country’s 'penal' stamp duty. The note was published on the same day that Peel Hunt said it expects to report a loss for the full year. The company’s shares fell as much as 6.7%."

❓What does this mean for investors? 

I would argue that the potential extinction of the market segment (although clearly being an issue in terms of poor liquidity) is not problematic for solid future returns. Quite the opposite…would you rather be on the receiving end of juicy takeover premiums (sometimes more than 100% as seen in the case of Hotel Chocolat) or would you prefer to cough those up yourself via your investment in a private equity fund? 

This one is a no-brainer for me. 

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement #valueinvesting

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🇬🇧 UK stocks to thrive thanks to the return of the Total Return Kings 👑 

Redwheel‘s value manager Ian Lance outlining two mechanisms by which UK stocks may turn out to be a great investment going forward:

1️⃣ Corporate takeovers
The relentless selling of UK equities has driven valuations to such low levels that overseas corporates have spotted an opportunity to acquire UK assets at prices that offer serious potential to achieve an attractive return. The attached chart shows an accelerated momentum in 2024. UK investors have to accept that if they
are going to drive valuations down to such low levels, overseas corporates are going to take advantage of them.

2️⃣ Share buybacks
Meeting the CEOs of the companies we invest in has been quite a depressing experience in recent years since many feel that they are doing a very good job of running their company and yet continue to watch their share prices fall. Our advice has been to not take the low share price personally but rather to use it to the advantage of the company’s shareholders by buying shares back at lower valuations as this will be value accretive in most cases. The attached chart suggests that this message is finally starting to hit home as 50% of UK companies within the MSCI UK Index have bought back shares in the last twelve months, the highest percentage of any market in the world.

➡️Case studies:

As we have highlighted before, the poster child for a successful capital allocation policy that uses share buybacks is Next plc which has bought back two-thirds of its shares in issue since 2000 and hence produced a total return for investors of 16% p.a. and seen its share price rise from £5 to £80 over that time despite only growing sales at 5% p.a.

Perhaps an even more spectacular example of the power of share buybacks has been BAT because investors were right to identify in 2000 that it had poor growth prospects due to declining numbers of people smoking. Between 2000 & 2016, its sales only grew by 2% p.a. and yet it gave its
shareholders a 22% p.a. total return and saw its share price rise from £3 to £50.

It is worth noting that share buybacks can
sometimes have no impact for a while and then have a very marked impact when the market finally wakes up to what is going on. The attached chart shows how US department store Dillard's Inc. quietly bought back shares for a number of years with no real impact and then between Jan 2021 and Jan 2022 saw its share price rise from $50 to $400.

In case you wondered what Ian Lance‘s top picks for the new Total Return Kings 👑 in his portfolio were:
bp, Shell, TotalEnergies, Stellantis Stellantis, Barclays, NatWest Group, Standard Chartered, NN Group. Which have handed back 16-43% of their current market cap to their shareholders over the past 2 years.

With a lot more to come I may add. 😌

(+++Opinions are my own. Not investment advice. Do your own research.+++)

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The Return of the Total Return Kings_Redwheel_8April2024

🤠🐎 "Lone ranger" hedge fund boss Barry Norris with another serving of critical thinking on energy transition & ESG

Barry Norris, founder and CIO of Argonaut Capital Partners LLP, last November made a strong case for the "moral case for fossil fuel investing" on Merryn Somerset Webb's excellent Bloomberg podcast Merryn Talks Money (with co-host John Stepek).

On another podcast appearance last week, this time on Stephen Clapham's Behind The Balance Sheet/ESG series, he makes a pretty cohesive argument why he believes the economics of offshore wind 💨 are deeply flawed. 

He likens wind and solar to unreliable workers and views nuclear and fossil fuel generation as the reliable workers. You can't have a factory staffed only by unreliable workers he argues. 

Barry has made good money out of shorting Ørsted for two years, the Danish 🇩🇰 offshore wind company which has fallen some 6️⃣0️⃣% from the peak 🏔️. A stock he expects to go to 0️⃣ eventually (absent of government subsidies).

Norris started his own business at the age of only 30. He believes that it was a function of the fact that certain people work well in bigger organisations and certain people work better in smaller organisations. Being able to step back and think about things in a really critical way, he found it easier to do that as a lone ranger 🤠 🐎 than being part of a bigger battalion 💂‍♂️🎖️. Going out on his own shielded him from group think and having to worry about how to best fit in and move up the corporate ladder🪜.

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement #energytransition #esg

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Abrdn: A gift 🎁 that keeps giving! (Although its CIO calls it corporate bullying)

Some people would argue that by going for the name Abrdn, the combined entity of Standard Life & Aberdeen was kind of asking to be mocked. When all they wanted was to avoid being called Staberdeen 🔪!

As City A.M. Club reports:

"Abrdn’s chief investment officer has complained that the company is facing 'corporate bullying' by the media due to its name.
In an interview with Financial News, Peter Branner said that the British press mocking the company’s disemvowelled name was taking it a step too far.

'I understand that corporate bullying to some extent is part of the game with the press, even though it’s a little childish to keep hammering the missing vowels in our name,' he said. 
'Would you do that with an individual? How would you look at a person who makes fun of your name day in day out? It’s probably not ethical to do it. But apparently with companies it is different.'

When Standard Life and Aberdeen Asset Management merged in 2017, the company soon became known as ‘Staberdeen‘ in the City, much to the company’s dismay.
Therefore, it seemed clear that Standard Life Aberdeen was due for a rebrand, and having sold the Standard Life name to Phoenix Group in February 2021, the name ‘abrdn’ was revealed in April.

Chief executive Stephen Bird said at the time that the new name would 'create unity across the business', uniting the various acquisitions within the firm.

Developed by branding agency Wolff Olins, the new name is written in lower case and pronounced as ‘Aberdeen’.
However, it faced a string of ridicule from the public and press alike, with AJ Bell‘s Laith Khalaf saying at the time that it would be leaving investors 'dazed and confused'.
Others compared it to the disastrous rebranding of Royal Mail as Consignia, or to asking Countdown host Rachel Riley for consonants.
As the company has suffered years of less-than-stellar investment performance, with its share price dropped by 5️⃣0️⃣% since the name was announced, many have argued that the name change has not helped the business recover.

All we can say is: Srry fr th bllyng Abrdn."

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement #assetmanagement

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Fascinating example of a tail hedge: Someone betting on the prospect of a 3,333✖️payoff? 🎰

As Alexander Gloy commented in his original post:
"Someone bought 1,286 December #gold calls, strike $1️⃣0️⃣,0️⃣0️⃣0️⃣ per ounce (currently $2,250). 

1 call = 100 ounces = $225,000 underlying
1,286 calls = 128,600 ounces = $289 million underlying.

Obviously, that's not what was paid for the options. The value of one option settled at $0.30, hence 1,286 contracts are worth $38,580.

Obviously, that's some 'insurance' money for financial Armageddon (or post-US-election mayhem). Still noteworthy."

This kind of tail risk hedge reminds me of some of the successful asymmetric macro hedges 🇺🇸 star investor Bill Ackman managed to pull off in recent years. In one case achieving an almost 100-fold payoff on the premium paid on a derivatives contract he closed out during the Covid crash in March 2020.

Wouldn‘t be surprised if he was behind this trade. But of course plenty of other suspects in the hedge fund community!

And another firm behind this type of tail risk hedge could be UK absolute return asset manager Ruffer, known for employing noteworthy strategies to protect investor capital.

❓So what could be the payoff for this trade?
Well, if gold 🏅 spiked up to, say, $11,000 before the option expiry date in December, this would result in the option value increasing to 128,600 x 1,000 = $128,600,000, or a tidy 3,333 times the option premium paid. Yes, it ain’t gonna happen (in all likelihood). But for a multi-billion dollar hedge fund looking for cheap insurance to protect an equities portfolio 💼 against a market mayhem scenario, I could think of worse ways to spent a tiny fraction of the fund's NAV. 

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement #options #hedging #hedgefunds

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My favourite kind of letter ✉️ arrived in the post today…BRK 2024 here I come! 🥳 

Who else in planning to go to Omaha this year?

(+++Opinions are my own. Not investment advice. Do your own research.+++)

#markets #investing #money #wealthmanagement #valueinvesting #buffett #warrenbuffett #berkshire #brkagm #berkshirehathaway

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