Spain: Value-investing makes a comeback
The return of the renowned Spanish fund manager Francisco García Paramés and the launch of his boutique Cobas Asset Management, which follows a value-investing philosophy, has generated much media interest.
With every new move in his career, Spain’s star value fund manager has hit the headlines, as other value asset managers, such as azValor, have proliferated since the disintegration of the former Bestinver team, following Paramés’ abrupt departure in September 2014.
At the same time, top fund managers such as Iván Martín, formerly with Santander AM and Aviva Investors and now founder of Magallanes, or Valentum’s Luis de Blas and Jesús Domínguez, previously with Banesto, decided to pursue their own ambitions by setting up their value boutique.
More recently, in February this year, Andbank launched Gestión Value, the first Spanish value-investing fund of funds combining strategies of prominent Spanish value boutiques while investing directly in shares of Berkshire Hathaway, the company led by renowned investor Warren Buffett.
“The Gestión Value fund was launched off the back of several reasons. Firstly, the good prospects for the value management style, which after 10 years of relatively poor returns compared to other styles like growth, seems to be starting to re-emerge,” says Andbank analyst David Sánchez.
“With the improvement in returns last year, interest has returned among investors and demand for this type of products has increased, providing a good environment for the launch of a fund that groups together the best value managers,” Sánchez adds.
The value momentum could also benefit from the surge in passive investments, as it can generate inefficiencies that can be exploited from the value style point of view. “Passive investment is becoming relevant, highlighting the poor results of supposedly active management,” notes Magallanes’ Martín.
“Most management offered and charged as active does not beat the indices. Investors are becoming aware of this, and this is an opportunity for value management, which is active and away from the indices,” he explains.
azValor partner Beltrán Parages adds that Spanish investors have traditionally relied on bank deposits and fixed income products but there is now increasing interest in investments that offer higher returns in the medium and long-term.
“The increasing demand for products with more attractive returns, the greater professionalisation of local asset management, the appearance of new firms with interesting proposals, media interest and the creation of new products with good yields sustainable over time is a good breeding ground for the appearance and development of independent local boutiques,” Parages says.
The value philosophy is typically attributed to developments in the early 1930s by Benjamin Graham at Columbia Business School.
Almost 90 years later, and against a backdrop of different macroeconomic scenarios, the style’s core – buying the shares of solid, well-managed companies with low stock valuations compared with similar companies or the market as a whole – has shown itself able to general long-term returns – just ask Buffett, who is estimated to have a fortune of $74.3bn, according to Forbes.
“The success of the value investment does not depend on macro factors, but on the ability to find and invest in businesses that are far from their fundamental valuation. That is why this style is successful both in good times and in bad economic cycles,” says Martín.
At the same time, a volatile and correlated market is a complex environment for value managers, as companies with good fundamentals are unlikely to stand out, disfavouring this management style. “Although it is a very attractive philosophy, the handicap is that it involves a great effort on the part of those who apply it since it requires knowing in detail all the aspects that surround the businesses of the companies where it is invested,” Parages says.