Tag Archive for: Columbus Fund

Pareturn GVC Gaesco Columbus European MidCap Equity Fund Update

We passed an important milestone earlier this week as Columbus European MidCap Equity Fund (I2-B) returned to a positive absolute performance for 2020 – something that seemed a distant prospect in the dark days of March and April when the Coronavirus first exploded onto the scene. At this stage European Markets still remain in negative territory while Columbus is back to positive return year to date, after it has risen by +24.39% over the last since 6 months, and by +58.55% since the market’s low on March 18th. Over the last 12 months the performance is +4.60%

Our attention to valuation led us to a relatively large cash position before the pandemic struck so we were well placed to capitalise on the weakness through March and April and were then fully invested while markets recovered. The weakness also provided an opportunity to add a couple of new names to the fund that we had been monitoring for some time in the infrastructure sector. As our investors know, our aim is not to time the market, but we do try to take advantage of opportunities when they present themselves – always with a focus on the long term.

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.

Report October 2020

During October, the Columbus Fund declined by -3.06%, comparing favourably to the -3.62% fall in the MSCI Mid Cap and -5.3% in the STOXX 600. Over the past six months the Fund has risen by +7.84%, and by +41.71% since the market’s low on March 18th. Over the year to date Columbus has also fared relatively well with a fall of -10.1%, beating the closest benchmarks which range from -13% for the MSCI Mid Cap to -32.4% for the Ibex. Since inception in June 2008, Columbus’ return has been 97.3%, far exceeding European equity indices.

European equities largely traded sideways over the month against a backdrop of slightly weaker consumer confidence and a contracting PMI across much of the region. Headlines were once again dominated by Covid 19 as signs of a seasonal rise in cases led to renewed lockdowns in many European countries. The continued government furlough support across many European countries has helped to alleviate the short-term suffering of many workers but has been insufficient to prevent the eurozone unemployment rate form rising above 8%. While clearly necessary to support the many businesses affected by the government lockdowns, the increased debt will be a burden for a long time to come. Given that the result of the US presidential election remained uncertain it is unsurprising that equity markets experienced some weakness during the month.

October and November see the bulk of our third quarter reporting period and gives us a timely update of the operational performances of many of our holdings, as well as related businesses such as competitors or suppliers. Thus far the reports have been largely unsurprising with most companies still cautious regarding the near-term outlook. The unknown duration and further impact of the Coronavirus make forecasting more than usually difficult and so many firms are being purposely vague. What is clear, however, is how much has been achieved over the past months in terms of restructuring and efficiency gains to protect earnings and cash flow. In many cases the achievements are underappreciated by investors in terms of the additional workload and pressures endured across most businesses. Reviewing the relative performances within similar industries gives additional insight into the flexibility and strengths of the different business models. While none of this is to be actively desired it is incrementally useful information for assessing our convictions.

As mentioned in last month’s commentary we took the proceeds of the sale of long term holding in Ingenico and invested in a few new positions. One of these is VGP. VGP is a company we have followed for a long time and took this opportunity to add it to the fund. This Belgian listed company builds and, in some cases, operates logistics centres for industrial and retail clients in 12 countries across Europe. Still led by the founder, Jan Van Geet, the company has grown steadily from nothing to a market cap of €2.5bn over the past 22 years. Their process is consistent and proven to be highly repeatable. Although a real estate business, the company is not a REIT as they reinvest continually for growth rather than paying out to shareholders (but still providing an attractive dividend yield above 2%). A clever joint venture structure with Allianz means that they can quickly crystalise the value of newly built assets and effectively redeploy the capital. The recent acceleration in ecommerce can only be helpful to them over the coming years.

The strongest contributions to performance in the month came from Bodycote (UK listed, industrial heat treatment) and Edenred (French, business services). Edenred stood out for producing better than expected revenues during the third quarter, again demonstrating the strength of the business model. The most significant detractors, by contrast, were the software companies Avast (UK listed, security software) and Software AG (German, business software) which suffered a malware attack during the month.

 

Download monthly factsheet

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. 

ESG – Beyond The Headlines

Generally speaking, we are used to things getting better. Obviously the current pandemic is a (hopefully) temporary break in that trend, but it does not alter the fact. Life expectancy, infant mortality, quality of life, access to communication and other services are all on a generally improving line. From a global perspective, in most measurable ways there has never been a better time to be alive. This is true for us humans, but almost completely untrue for every other species on the planet.  Our trend of rising prosperity brings increased consumerism, which demands the production of ever greater quantities of goods. Not only do we want more but there are more of us to want it and as our population grows the sad corollary is that the population of every other living thing declines. As China’s failed one child policy has shown us there is no absolutist solution to population control so we must deal with this trend as effectively as we can by using innovation, improving education and applying common sense strategies in our own lives while encouraging others to do the same. Reuse, recycle, mend and maintain; think twice before buying that item wrapped in plastic; invest in ESG.

Invest in ESG – but what does that really mean? In a recent discussion with a young lady just beginning her working career we got onto the topic of ESG investing. Like most people of her generation she was (rightly) strongly supportive of the concept and made sure that her investments went into suitably labelled funds. However, beyond a broad wish to make a positive contribution with her money she was understandably vague about the sorts of companies that she would ultimately like to be invested in.

Somewhat mischievously I asked her ‘ how about an industrial heat treatment business?’ and she winced. This would be a common response I suspect yet highlights one of my concerns about the shallow thinking behind much of the investment into ESG in general.

The industrial heat treatment business in question is Bodycote Plc. This is an example of a high-quality UK based engineering company, founded between the wars in Leicestershire but which only entered the heat treatment business in the late 1970s. The company has a strong tradition of innovation and has grown organically and through acquisition to be a leading player in the industry. Unsurprisingly heat treatment is not something many people think about but is an essential process in many mechanised industries. The process dramatically improves hardness and thus durability. It significantly extends the life of mechanical components as well as allowing them to be smaller and lighter. Gears, bearings, cutting tools, fasteners and many other applications rely on this process. Without it, engines and turbines would be less efficient and require more maintenance, drive shafts and components would be heavier requiring more energy – more petrol or wiggly-amps in your car. So while the process of heat treatment is itself energy consumptive, it more than makes up for this in the energy it saves over the lifetimes of the components it creates. Wind turbines, for example, would not be viable without the process of heat treatment.

Bodycote is an example of a company whose operations are not obviously helping to reduce our environmental impact yet are clearly contributing behind the scenes. It is the contribution made by these somewhat hidden, second tier businesses which needs to be better understood by environmentally conscious investors. Like many industrial companies Bodycote has made mistakes which have led to brushes with environmental agencies and there is clearly room for improvement in their practices. But companies are ultimately beholden to their shareholders and active investors have a key role here to engage with the management and push them in a positive direction. “Responsible’ funds which avoid companies in essential industries like this and starve them of capital will not help in the joined-up process of reducing global emissions. There are many examples of industrial companies who devote enormous sums into research and development to drive efficiency gains such as better conductors for electricity distribution, improved lubricants to extend product lives and reduce energy loss, and new compound materials reducing weight without compromising strength. They play a vital role in helping to achieve the global CO2 emissions targets but get little public recognition.

Bodycote is a longer term holding for the Columbus Fund and is a great example of a well managed champion in its niche with considerable longer-term growth potential. They have consistently improved their internal carbon efficiency and water usage and are getting better at providing information across a number of  environmental indicators. On top of this the stock offers an attractive and growing dividend sourced from consistent cash flow generation with a conservatively managed balance sheet and a mid-teens return on investment.

Investing wisely for a better environmental future is essential – but let’s remember to look beyond the headlines.

Graeme Bencke

 

Photo – Bodycote Annual Report