Report May 2022
During May, the Pareturn GVC Gaesco Columbus European MidCap Equity Fund Class I fell by -1.02%. In the last twelve months the Fund has fallen by -2.11%, but has risen by 29.82% in the last three years. Since its inception in June 2008, Columbus has returned 152.86%, comfortably outperforming European equity indices. The volatility in the last 12 months has been 13%. The fund has recently received a four-star rating from Morningstar.
May has been a continuation of the situation of recent months. Inflation remains at a four-decade high, with no evidence that it has yet peaked. Recent increases in energy and food prices, coupled with supply chain constraints, continue to affect Western economies. Expectations of interest rate hikes by central banks have increased. For this year, the markets are already discounting hikes by the US Federal Reserve at each of the next four meetings, with rates expected to end up above 3%. In Europe, the Central Bank already changed its tune in March and opened the door to start raising rates in July, with one more increase, at least, expected in September. The growth expectations for this year and next continue to be reduced while those for inflation have increased. Several private institutions predict a recession for next year, both in Europe and in the US that will be brief and relatively mild.
On the positive side, companies are posting better results than expected. In our meetings with companies, they confirm that sales and orders continue to be very strong, with inventories higher than normal, and that customers are accepting inflation-induced price increases. The short-term indicators related to services have improved in the first quarter of the year due to the lifting of travel restrictions, while those related to manufacturing have worsened due to the rising prices of raw materials and the disruptions in supply chains.
Several stocks in the fund have performed positively during the month, after presenting good results. We highlight the following:
- Krones (+17.78% in the month), the German bottling machinery manufacturer announced exceptional results (+12.9% revenue) in the first quarter of the year, while reaffirming its expectations for this year
- Interpump (+10.6%) the Italian company specialized in the production of water pressure pumps and one of the main groups in the hydraulic sector also presented its numbers for the quarter. Revenue increased by 15.5 % while maintaining their very high margins of 23.4%
- Unicaja (+9.05%), the Spanish bank, which has recently completed its merger with Liberbank, has benefitted from interest rate hikes. Its results were unsurprising, with increases in commissions and stable margins.
On the other hand, companies with exposure to the real estate sector such as VGP or Safestore have been heavily penalized by the expected increases in interest rates. Both companies are in growth segments (logistical parks and self-storage) In our conversations with their management, they highlight the strong increase in revenues for the coming years and their confidence in maintaining margins. We believe that the recent price decline is an opportunity to buy these quality companies.
Our portfolio continues to change and adapt to our expectations of the post-covid economic situation. In the Columbus Fund today, industrial and consumer stocks are prominent with a tilt to “economic normalisation stocks” — companies that were affected by the pandemic that are now returning to normal activity, such as tourism and leisure. We have not taken a position in companies related to the energy sector, which have performed well lately, since we do not have visibility on how energy prices will perform in the medium term. In late 2019, we had a sizeable position in stocks related to technology, software, renewable energy, and health (40% of the portfolio). In the intervening period, several of these holdings were sold for valuation reasons whilst some were taken over. Consequently, only 6% of the portfolio is invested in technology consulting businesses. We continue to maintain our renewables position in Neoen.
Value and growth are commonly used terms of distinction among equity investors who are often convinced of one approach or the other, however, we have a more pragmatic vision. We look for companies trading below our calculation of intrinsic value, but to hold these stocks for the long term we also look for significant potential for growth. In some cases, most of our expected return will come from revenue growth, and in other cases from a correction in the company’s undervaluation. By investing in a variety of opportunities, we are less exposed to changes in market sentiment, such as the one currently taking place.
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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 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.
