During January, Columbus European Equity Fund Class I fell by 5.08%. Over the past 12 months the Fund has risen by 19.23%, and by 47.42% over the past 3 years. Since inception in June 2008, Columbus’ return has been 175.73%, comfortably exceeding the broad European equity index. These results have been achieved with a volatility of 11.74% over the last year, below that of the Stoxx 600 at 13.1%.
The new year began with an increase in volatility and falls across global equity markets. There were several reasons for the correction, with the most important, in our view, being the strong increase in inflation, well above levels seen in recent years, and with little sign of a short-term peak. The reversal in trend for central banks, which have now begun to increase interest rates, was more than enough to spur this concern into action. As a result, markets are now expecting the Federal Reserve to begin steadily increasing rates from March. The inflation picture is partly influenced by the recent increase in energy prices which reached levels not seen since 2014. Prices have been partly impacted by the ongoing geopolitical tension between NATO and Russia over Ukraine and show little sign of abating. On the positive side, the company results have generally surprised positively, and economic activity continues to recover as the restrictions due to Covid are progressively withdrawn.
As for the portfolio, those sectors with positive correlation to higher interest rates and economic recovery have been outperforming, while the most highly valued stocks have seen the biggest declines. The holdings which contributed most to performance during the month were Unicaja Banco (+4.8% in the month), the Spanish banking group and Dalata Hotels (+14%) in Ireland. Bank stocks in general tend to be beneficiaries in periods of rising interest rates and Unicaja is more sensitive to this impact than many other listed banks across the region. Dalata, by contrast, benefitted from the easing of Covid restrictions which has led to hopes of a more significant recovery in travel. The weaker contributors were two of our Italian holdings, Interpump (-15.7%), specialist engineering group and Reply (-17%) technology consultancy, which saw their valuations fall. Operationally both continue to perform extremely well.
It is interesting to look back on how our portfolio has been changing over the last two years, since before the pandemic hit. In late 2019, we had a sizeable position in technology, software, renewable and health related stocks (40% of the portfolio). In the intervening period several of these holdings were sold on valuation grounds, some were taken over, with now only 6% of the portfolio invested in technology consultancy businesses. In the Columbus fund today, industrials and consumer stocks are prominent with a tilt to “economic normalizations stocks”, which are companies that were hit by the pandemic and are now returning to normal trading conditions. Value and growth are commonly used terms of distinction among equity investors who often have conviction towards one approach or the other. However, as investors in the Columbus fund will be aware, we take a more pragmatic view. Clearly, we look for companies which trade below our calculation of intrinsic value, but in order to hold these companies for the longer term we also look for significant potential to grow. In some cases, most of our expected return will come from growth in revenues, and in other cases from a correction in the under-valuation of the company. By investing in a range of opportunities we are less exposed to shifts in market sentiment such as the change currently underway.
We thank you for your trust and wish the best to you and your families during these uncertain times.
Since June 14, 2018 both domestic and foreign investors have been able to access the Columbus strategy via the master-feeder structure between the Columbus 75 Sicav in Spain (feeder) and the Luxembourg registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund (master). The Luxembourg vehicle offers both institutional and retail share classes.