Report November 2023

We are delighted to announce that Bosco Ojeda has joined Columbus. Bosco brings a wealth of experience having worked for over 25 years at UBS, where he held the position of Head of European Small and Midcap Research.

Pareturn Columbus class I is up 8.30% in November, 4.24% in 2023 and 24.5% in the last 5 years. This was a great month for European midcaps (MSCI Mid Europe: +6.4%) and in general for equity markets (Stoxx 600: +6.4%), although it’s just a small bounce after a weak October. The bounce was largely driven by a rally in bonds which experienced one of the best months for the past 40 years. Time will tell if inflation is set to return to central banks goals, but today inflation is no longer the concern it was months ago. Companies, families, and governments can now refinance 80bp lower than at the peak in October and there is a strong feeling that the rates risk is now limited. Money market funds are so heavily overweighted that the inflation change is a massive event. For European midcaps this is a very relevant theme, we see deep value in many high-quality companies in Europe which have solid growing cash flow prospects. The opportunity to invest in quality growth companies in Europe is still there, no matter if the macro situation can remain subdued for some time or if inflation does not return to the 2% target for some time.

 

The “big 7” (Apple, Amazon, Google, Meta, Microsoft, Nvidia and Tesla) underperformed midcaps this month. There is excessive equity concentration on those stocks, usually a driver of low returns in the long-term. An open economy requires a large group of companies that respond to economic needs and a good selection of small/midcaps tends to have better upside in the long term than the market average. Market consensus expects the economy to slow down in 2024 and begin a period of rate cuts that may be favourable for bond and equity valuations. The risk of a macro adjustment remains present, but rates relief is taking away a big risk of stagnation. In this environment, we are convinced that the Columbus’ portfolio is well positioned.

Regarding the Columbus portfolio, during the month of November, the return of some of the stocks we hold stand out. The 2 best performing stocks this month coincide with companies where we increased our stakes in 2023, including Grifols (+22%) and Elecnor (+16%). In both cases there was a clear catalyst behind the strong performance (asset disposals). A reminder that stocks can be cheap for long, but a good catalyst can revert how the market looks at some companies.
Other stocks that enjoyed a strong performance include Fraport, Prysmian, Neoen and Reply. These are stocks which were penalized despite a solid operating performance, there are quite a few of those in our portfolio that should be heavily rerated. On the negative side, during November a few financials have suffered from lower rates prospects (Unicaja: -6%, Mapfre: -2%, SCOR: -2%). We maintain a moderate exposure to low-risk financials as current rates will continue to support earnings for a while and value remains very supportive.

Over the past 4 weeks we have been very busy visiting more than 40 companies. This is a great time of the year to meet with management teams ahead of 2024. Most companies have good visibility on the budgets for next year and for Columbus is a fantastic opportunity to rebalance the portfolio. We anticipate relevant changes in Columbus over the coming days with fresh new ideas and changes in weightings. November performance can be the tip of the iceberg of a potential rerating for quality European midcaps and we want to be ready to capture its long-term potential.

 

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The Columbus Fund can be purchased through the AllFunds, Inversis and Fundsettle platforms. Columbus has a Master-Feeder structure. The Pareturn GVC Gaesco Columbus European Equity Fund in Luxembourg (master) and the GVC Columbus European Equties FI fund (subordinate). The Luxembourg vehicle offers institutional and retail share classes denominated in euros and sterling.

Report October 2023

The month of October has been a difficult month for the stock markets. European equity indices fell between 3.6% for the Stoxx600 index and 5% for the MSCI Midcaps Europe in the month. Stock prices factor in tough macro developments and the highest interest rate environment in a decade. In the US, the Russell 2000 of medium-sized companies also fell 7% in the year to October. Pareturn Columbus class I decreased by -5% in October 2023 and -3.7% year to date. Since its inception in June 2008, it has risen by 114.7%, widely outperforming the European equity indices.

There are three closely related factors that are affecting the markets and specifically midcaps. The first, interest rates, which after one of the most pronounced increases in recent decades, are beginning to show signs of stabilization. The second, macro expectations that until now have shown more strength than expected, but with signs of incipient weakness. Finally, inflation, which, although still high, has been substantially reduced. In this environment, investors have chosen to invest in the money market and short-term duration fixed income and concentrate on the “big 7” (Apple, Amazon, Google, Meta, Microsoft, Nvidia and Tesla). While it is true that consumers and certain trends (e.g. artificial intelligence) are favorable to these names, history shows that excessive concentration in certain stocks ​​is a poor indicator of future returns. The market economy requires a broad group of companies that respond to economic needs and a good selection of securities tends to have better appreciation in the long term than the market average.

For the year 2024 we expect reductions in interest rates, which will be favorable for valuations and risk assets such as equities. In this environment, we are convinced that Columbus’ portfolio is well positioned with high margin, not excessively cyclical companies with healthy balance sheets.

Regarding the Columbus portfolio, during the month of October, the return of companies with good growth expectations stands out, such as YouGov, which presented results and rose 13% in the month, and other securities that had a strong performance, such as Elecnor (+8% ), EFG International (+5%) or Kontron which rose 4%. We particularly highlight YouGov, which rose significantly after publishing results that significantly beat the market expectations. On the negative side, industrial stocks continue to show weakness such as Duerr (-25%), Bodycote (-12%) which are suffering from the increase in costs. In all cases, we expect these companies to recover ​​due to their restructuring plans and potential price increases.

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Since May 2023, Spanish investors have been able to access the Columbus strategy through the Spanish GVC Columbus European Equities FI fund. The Fund can be purchased through the AllFunds, Inversis and Fundsettle platforms. Columbus has a Master-Feeder structure: The Pareturn GVC Gaesco Columbus European Equity Fund in Luxembourg (master) and the GVC Columbus European Equties FI fund (subordinate). The Luxembourg vehicle offers institutional share classes denominated in euros and sterling and retail in euros and can be purchased by international investors.

Report August 2022

The state of the stock market, fundamentally, has not changed. Everything is still focused on inflation. The message from the central banks in Jackson Hole has been clear: The priority is to control inflation, even at the cost of sacrificing more growth and employment. In recent weeks, this has led to expectations of further increases in interest rates and the belief that these will remain high for longer.

Pareturn GVC Gaesco Columbus European Equity Fund Class I was down 5.54% in August in line with markets. Over the last three years it has risen 14.26%. Since its inception in June 2008, Columbus has returned 127.50%, far outperforming European equity indices. The volatility during the last year has been 18%.

Performance Columbus Fund

The market now expects the Fed to raise rates to 4.75% in early 2023, instead of the previous 4.5%, and both the Bank of England and the ECB to raise rates to 3.25% and 2.25% respectively from the expected rates of 2.0% and 1% from before summer.

In many respects, the fundamentals remain favourable: labour demand is at record levels in both the US and Europe, the financial system is well capitalized, families have high levels of savings accumulated during the pandemic, and companies have not increased their productive capacity. However, growth in 2023 will be weak, with a heightened risk of recession, especially in Europe (late 2022-early 23), which will begin to materialize after the summer, given the energy shortage.

We continue to think that the key to the behaviour of the markets is the future evolution of inflation. The falls we have seen in the price of oil and other raw materials, as well as the easing of supply chain disruptions, such as improvements in freight prices, augur drops in inflation, which will begin to materialize in the last quarter of this year and especially in 2023, when last year’s energy increases fall out of the calculation.

We reiterate what we said last month: stock markets will react positively when we start to see better inflation data in the last quarter of this year and in the first quarter of next year. European equity valuations are below their average valuations in recent years, mutual funds have increased their liquidity levels dramatically and investor pessimism is at its highest level since 2009. All these are positive indicators of future stock behaviour.

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We thank you for your trust and wish the best to you and your families during these uncertain times.

Since June 14, 2018, both national and foreign investors can access the Columbus strategy through the Master-Feeder structure between Columbus 75 Sicav in Spain (feeder) and the registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund in Luxembourg (master). The Luxembourg vehicle offers institutional and retail share classes denominated in euros. We have also just set up a sterling share class to facilitate investment from the UK.
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