MyInvestor Value is celebrating its third year of experience with the launch of its replica retirement plan format, with almost 20 million euros in assets and more than 2,500 participants, at a time when, according to its manager, Carlos Val-Carreres, European medium and small companies are negative for the year, which favors the valuation of the situation, with a long-term strategy of structural trends, such as the energy transition, where 60% of the portfolio is located.
How to convince shareholders to invest in “small cap” funds because of the companies’ valuation?
2024 is a bad year, but for me these exercises are seedlings. Europe is full of small and medium-sized companies with global operations, leaders in their niche, with valuations that I have only seen in recessions. And I haven’t seen a positive valuation gap for this type of company like I’ve seen right now in my life. In April 2020, while at another company, I assured in a letter to investors that I believed I had the cheapest portfolio of my management career. We managed to double assets over the next 14 months. But today’s wallet is much cheaper. And if in five years we don’t manage to double that money, we will have done something wrong.
Few managers would say this is a great time to start, better than with Covid or Lehman.
We are in one of the biggest bubbles in the major indices resulting from passive management and investors are ignoring the risks involved. We are at maximum valuations and with valuation traps, pardon the redundancy, which we call margins. We saw what happened at Nike, at Louis Vuitton or at Tesla. Post-Covid, there has been a bottleneck in many businesses: high demand appears when there was a lack of supply, and many businesses achieved margins they had not had in their life and which are not sustainable, and they have started to reverse the trend. situation. . They are canaries in the mine of crazy valuations. Tesla is down 50% in the stock market and remains at 100 times earnings. The difference with dotcoms is that they have not made profits, but now these valuations are based on a concept of quality and profits which we will see if they are also sustainable.
Do you think we will enter a new cycle of economic growth favoring cyclical companies?
I think that if artificial intelligence is to improve productivity, the second most obvious consequence will be the energy transition, because it will increase energy consumption. We see big tech companies making deals even on nuclear power. And I invest in companies that will benefit not from a new cycle but from the necessary investments in the infrastructure that there must be in the world in general, like everything that involves recycling and processing of raw materials.
What is surprising about the fund is that, being global, the concentration of the portfolio is in Europe.
When I started managing the fund, we put the global index as reference to beat, but my know how and the knowledge comes from European companies, which I analyze for 20 years of experience. It is therefore a fund of small capitals European. We sometimes invested early in North American companies, but quickly disinvested.
In the portfolio, a quarter are French companies, a market penalized this year
We have an exposure limit of 25% per country. During my last stop in Lierde, we made a lot of money with digitalization and most of the companies were French, like Infotel or Neurones. France has very high labor costs and companies have had to digitalize before others to be able to compete. I frequently find very good French companies, but I have no exposure to the French national market. They are penalized by the increase in taxes, but, in the current state of global public finances, will the same thing not happen in Spain, the United States and the rest of the world? Taxes on corporate profits will have to increase to pay off the public debt.
Plastic Omnium is a classic in the fund’s portfolio, even if since 2018 it has fallen by 75% on the stock market. Where is the brake?
The day investment strategists decide to assign weighting to small capitalsin companies like Plastic Omnium, I don’t know what can happen when the money comes in. I only have a 3% exposure not for lack of conviction, but because Andbank has very strict liquidity criteria and I need to be able to offload 90% of the portfolio in seven days with only 10% of the daily volume AVERAGE. So since I can no longer have this company, I bought Forvia and Gestamp.
Has the automotive sector not become a value trap?
Yes, it is a value trap, because competition between manufacturers has increased significantly. I am not able to know if the car brands are manufacturers with a financing company or if they are banks which, to finance, sell cars. And at such an important moment of transition from the thermal engine to the electric motor, we will have to see what happens to the residual values. The automotive sector will suffer a lot, but that of manufacturers. If there were 20 brands 15 years ago, today there are 60. But within components, there is not much competition, and the Chinese use components from European brands because that gives them prestige. Over the previous decade, Europeans and North Americans outsourced a significant portion of R&D to component companies. Contrary to what it seems, there are therefore more barriers to entry in this segment than among car manufacturers. And the electric car is like the iPhone, an assembly of parts.
Is this why you bought Gestamp?
Gestamp, which makes products for BYD, with profits currently depressed, has an ROE of 12-13%, meaning that on the stock market it is 0.6 times its book value. But the value of its fixed assets at acquisition cost is 10.8 billion euros. When the Chinese have to start manufacturing here, if they don’t entrust the matter to Gestamp, will they install the production factories? It would be cheaper for them to buy Gestamp. The same thing happens with Forvia, which is 0.3 times book value. In addition, these companies will have more power to negotiate prices because they have more customers and will be able to eliminate the dependence they had on certain brands, such as Forvia in the case of Stellantis.
Trigano since 2018 has had a very irregular evolution, it can be bought at a very low price. And it features a wild buy recommendation from the analysts who follow it.
This is a company I first invested in 15 years ago. Along with Merlin’s Ismael Clemente, he seems to me to be one of the most brilliant managers I have ever met. It has created a duopoly with motorhomes. The company is a real compound. At one hundred euros per share, I start to build the position until I reach 3% of the portfolio. If the market corrects, it could reach 70-80 euros, and at this price I would have 5-6% in my portfolio. At 100 euros you buy at 1 book value a company which will make ROE closer to 20% than 15%, in a structural activity and which has very loyal users.
