‘Value Investing’ is fashionable. In the last few months, two brokerage firms have been set up in Spain exclusively focused on this – Envalor and PlusValue – , a fund of funds has been launched – Andbank’s Gestion Value – and new fund management companies are emerging – Cobas, owned by García-Paramés himself – and specialised products – Equam Capital. How far this phenomenon will go remains to be seen.
Francisco García-Paramés, the asset manager who has made ‘Value Investing’ popular in Spain thanks to the good results obtained during the last 20 years, recently presented his book Investing for the Long-Term. As if he were a self-help financial guru, his experiences and advice do not go to waste. “The more a company appears in the press, the further you should keep away from it,”; “for me it’s key to flee from stock market listings, which are moments when companies promote themselves too much”; “the older a company is, the more possibilities it has of surviving”; “Facebook is trading at 40x earnings. That means it’s normal to recover your investment in 40 years and anything can happen in 4o years”; “We don’t invest in anything that does not have a clear position in 10 years”; “We are most happy with family-owned companies”…
Since December 2016, the Stock Market Regulator (CNMV) has registered two new broking firms which were former agents for the company where García-Paramés worked – Bestinver. Envalor and PlusValue’s way of managing assets is closely linked to his.
Envalor will focus on investing exclusively in the “3 or 4 best European value fund managers”, starting with those with the best reputation in Spain. “Paco’s success has set a precedent and Spanish value fund managers are amongst the most successful and sought after in Europe,” says Heraclio González, managing director of Envalor. Furthermore, “it’s a fact that the relative percentage of investment in equities in Spain, and in particular in Value management, is still far off the percentage of other OECD countries. But as the average financial culture improves and moves towards independent advisors, the gap will start closing,” he adds.
For the time being, Value Investing is making sales. Andbank assures that Gestión Value, the first Spanish equity fund of funds with the Value philosophy, has attracted over 37 million euros and more than 1,000 participants in its first month of existence, which was February this year. Gestión Value combines in one product the strategy of the four big Spanish fund managers with this focus – AZ Valor, Cobas, Bestinver and Magallanes – as well as the direct investment in shares of the US company Berkshire Hathaway, the investment vehicle of Warren Buffet – the so-called ‘Omaha Oracle’. Buffet continues to act as a global investment guru while playing the ukelele and eating hamburgers and ice-cream in a small town in this mid-west region of the US.
Some experts believe the Spanish market is too small for all this value management and that it could put too much heat on the stocks which are the target of this invesment focus, going for the jugular as far as their growth in our country is concerned. Alfonso de Gregorio, director of asset management at Gesconsult, which has been doing Value investing for two decades, points to this factor as the most threatening one for Value in Spain. “The market is what it is and we are all after the same thing.” And there is also the risk of appearing to be. One fund manager told me “once you have seen one, you’ve seen them all”. Aware of this risk, the promoters of Equam, who only sell a European product, believe that “there are good opportunities in Spanish equities as well and we have some companies in our portfolio. But the European universe is very big and the likelihood of finding a good, cheap company, with a reasonable amount of debt and well managed, which has been forgotten by the market, is very high. Furthermore, any European capital is just a few hours away from Madrid and we can visit the people who manage our investments fairly frequently.”
The banking sector
It remains to be seen how this phenomenon will affect the banking sector, which now hardly even leaves the independent fund managers the crumbs of collective investment. Antonio Banda, CEO of Feelcapital, believes that these asset managers are characterised, precisely, by their independent criteria when they invest. So “it’s going to be difficult for a bank fund manager to make a value investment” and that “an increasingly bigger market with up to 300 billion euros provides a clear opportunity for Value managers to enter without causing saturation.”
García-Paramés himself offers a Value interpretation of the perimeters of the competition in this growing investment focus, as he explained in his conference in Pamplona. “In Spain there are 860 billion euros in bank deposits earning 0%. In addition, we have investment funds valued at 250 billion euros, of which 225 are in fixed income with very low interest rates. This means that in Spain we have 1.1 billion euros which are not providing any returns. And we have 25 billion euros in equity investment funds. Do we have to fight each other for these 25 billion? I believe we have to fight for those 1.1 billion euros in fixed income. Everything that does well has a lot of space to grow.”