Value Column von Hans Peter Schupp
31 MAY 2024
Against the tide for better performance
Hans Peter Schupp, managing partner of Fidecum AG and portfolio manager of the Contrarian Value Euroland Fund (ISIN: LU0370217092) about the quest for hidden gems
Are you familiar with Nexity, Quadient or Sogefi? The French real estate company, the manufacturer of mail processing systems and the Italian automotive supplier are companies that you will hardly find in any investment fund. But they are included in our Fidecum Contrarian Value Euroland equity fund. Why? Well, because we dig deep in our extensive analyses and in addition to extremely attractive valuations we see good growth prospects here.
“If you buy the same stocks as everyone else, you will get the same performance.”
And they reflect our conviction that you don’t have to go with the flow to achieve a good return for your investors. As the legendary fund manager Sir John Templeton once said: “If you buy the same securities as other people, you will have the same results as other people.”
The lesson learned from this is the importance of differentiated thinking and independence from the crowd. Sir John believed that success in investing often lies in not running with the herd, but also in making unconventional decisions. After all, if investors just follow the trends and buy the same stocks as everyone else, it will be difficult to achieve above-average returns. Templeton himself noticed that his returns were better when he was staying in the Bahamas rather than in New York, where most of the market participants were located. Templeton therefore encouraged investors to conduct their own analysis, draw their own conclusions and act independently.
Hardly any overlaps with the benchmark index
We follow the grand masters tradition when selecting the portfolio companies for our Contrarian Value Euroland Fund. Only 3 percent of our portfolio overlaps with our benchmark index, the EURO STOXX Return Index. The “active share” is therefore 97 percent. Focused investments of for instance 9 percent of the fund volume in Deutsche Bank or 7.5 percent in Renault create a concentrated high conviction portfolio. We prefer to avoid high-flyers such as Siemens Energy or Rheinmetall. On the other hand, we preferred to invest 6.5% in Sogefi, an Italian automotive supplier, which was valued at a P/E ratio of less than 3 at the time. Sogefi has since sold its no longer promising oil filter business for 400 million US dollars. This was considerably more than the amount at which Sogefi was valued on the stock exchange at the time. Hence, buyers of the Sogefi shares now receive the shock absorber business and the automotive radiator division, which means both cooling and heating for electric vehicles, as batteries require a constant temperature, virtually free of charge. And Sogefi is a leader in this field!
Some examples: Sogefi and Salzgitter
Another example is Salzgitter. The company is investing 1.3 billion euros to build a steel mill that emits hardly any CO2. This sum is more or less equivalent to the market capitalization of the steel producer. Some people may ask themselves: is this a good idea and who needs steel anyway? On the other hand, the project is being funded to the tune of one billion euros, while the company’s current market capitalization of 1.3 billion euros is just equivalent to the value of its stake in copper producer Aurubis. In addition, Salzgitter holds CO2 certificates to enable it to produce steel conventionally without additional levies until the end of the decade. The portfolio also includes KHS, one of the leading manufacturers of beverage filling systems. And finally, steel may not be sexy, but it is essential, as steel is the standard material in mechanical engineering and an important building material in the construction industry and in automotive production. The customer base is therefore widely diversified.
This shows: In our investment approach, which has been tried and tested for more than 25 years, we are looking for undervalued companies with comprehensible business potential: In our investment approach, which has been tried and tested for more than 25 years, we look for undervalued companies with understandable business potential. In doing so, we invest like an entrepreneur looking for opportunities, even if this means going against the prevailing market trend. Entirely in the tradition of grand master Sir John Templeton.
Translation for convenience only!
About the author: Hans Peter Schupp is a managing partner of Fidecum AG und the portfolio manager of the Contrarian Value Euroland Fund.