In this quarter we have again had the chance to continue enhancing the fund's potential, while improving its balance.
To use the same footballing metaphor that we mentioned in the last annual investor conference, we might say that the squad of companies that makes up Bestinfond (Trades, Portfolio) comprises goal-scoring strikers who help the team in defence. And by central defenders who score goals when they go up for corners. A good combination that does not guarantee results in the short term, but which should be very competitive in the matches to be played in the financial markets in the future.
As we mentioned above, many of our companies have shown fantastic appreciations in recent months. They would not be in the fund if we did not continue to believe that they offer value. Their multiples remain consistent with annual double-digit long-term returns, but our safety margin has undoubtedly shrunk. Their relative significance in the portfolio has also been reduced. This group of companies includes names like Inditex, Meta (META, Financial), Booking (BKNG, Financial), Informa, Rolls Royce (LSE:RR., Financial) or Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial).
We have changed the weighting of our positions in the oil industry. For a start, we have reduced the relative importance of the integrated oil firms BP (BP, Financial) and Shell (SHEL, Financial), as the long-term oil price discounted in their valuations does not reflect the opportunity existing only a few quarters ago. We have acted similarly by selling part of our position in TechnipFMC (FTI, Financial). We continue to believe that the current cycle favours oil equipment and service companies. The lack of investment over the last five years, together with the stability in oil prices that results from having OPEC as a marginal producer in the market (compared to shale producers in the previous cycle), provides the sector with levels of visibility and profitability unseen in the last ten years. After TechnipFMC's 70% rally so far this year, this new reality is much more accurately reflected in its valuation. In contrast, this is not the case with Vallourec (XPAR:VK), where we have continued to raise our positions. We believe that there is a very significant divergence between its share price and the fundamental value of the company following the restructuring of its business, the reduction in the debt on its balance sheet, and the cash generation capacity of its assets in the coming years.
We have fully divested our remaining interests in HSBC (HSBC, Financial), Prosus (XAMS:PRX, Financial) and Konecranes (OHEL:KCR, Financial). The resulting cash has been recycled by buying some names that make the fund more robust without sacrificing its appreciation potential. These are companies that are considered as defensive, since their business does not depend on the economic cycle, but which have a clearly offensive role within the portfolio thanks to the discount in their valuations. Heineken (XAMS:HEIA, Financial) is one of them, as is the Brazilian cash & carry supermarket company Sendas Distribuidora (ASAI), an old acquaintance that has returned to the portfolio.
Finally, the volatility in recent months has allowed us to start buying shares in three new companies. All of them are leaders in their respective sectors and are trading at valuations that should generate major gains in the coming years. As is the case with Philips (XAMS:PHIA) in this quarterly newsletter, we will tell you about them in more detail once they gain greater weight within the portfolio.
Value investing: the heart of Bestinver's strategy
The environment remains challenging but we must recall that to buy an asset for less than its value, you have to go against the market. Challenging its pessimism. The conviction that this requires can only be achieved if you know the company well thanks to a fundamental analysis, if you have the security that comes with appropriate risk management and if you buy with the necessary time perspective. Value investing unites and brings consistency to the three cornerstones of our philosophy and is therefore at the heart of Bestinver's strategy.
Thank you for your trust in us.
Yours sincerely,
The Investment Team.
This document has been drawn up by Bestinver Gestión, S.A. SGIIC for informative purposes only and may not be considered under any circumstances as an offer to invest in its investment funds. The information has been compiled by Bestinver Gestión, S.A. SGIIC from sources deemed to be reliable. However, although reasonable care has been taken to ensure that the information is correct, Bestinver Gestión, S.A. SGIIC does not warrant that it is accurate, complete or up to date. All opinions and estimates included in this document constitute the judgement of Bestinver Gestión, S.A. SGIIC at the date to which they refer and are subject to change without notice. All the opinions contained herein have been expressed on a general basis, without regard to specific investment objectives, the financial situation or individual needs. In no event shall Bestinver Gestión, S.A. SGIIC, its directors, employees and authorised personnel be liable for any type of damage that might arise, directly or indirectly, from the use of the information contained in this document. Under no circumstances is the announcement of past returns a promise or guarantee of future returns. All Bestinver returns are expressed in euro, net of fees and expenses. Potential: The fund's revaluation potential at a given time in the opinion of Bestinver's managers, calculated as the difference between the current and target PER. It is not the gain that the fund will achieve in a given period because, even if the fund achieves a specific performance, the managers' objective is to increase or at least maintain that potential. PER: Free cash-flow price at which the fund is listed, based on the PER estimated by Bestinver's managers for each company (including adjustments such as: debt, time of cycle, share price, foreign currencies, etc.). Target Price: Net Asset Value that could be reached by the fund's units based on the intrinsic value of all the securities making up the portfolio estimated by Bestinver's managers.
