The last 18 months have brought an earthquake in Japan and a debt crisis in Europe, and during much of this time macroeconomic worries ...
... have pulled market focus away from judging the quality of individual companies. But this is why patience is needed for value investing. Academic studies show that value stocks persistently outperform over the longer term and when markets focus on fundamentals, the pick-up in their performance can be very rapid.
In Europe, mounting concern over the debt crisis in autumn 2011, and again in Q2 2012, led to a ‘Postcode Europe’ phenomenon, where simply being domiciled or headquartered in Europe was enough to cause sharp share price declines. It didn’t matter if the underlying company was in fact multinational with a global spread of assets and earnings. Such conditions lead to some irrational pricing of individual stocks. Consider Renault: whatever your view on its European operations, the fact is that Renault costs EUR 32 per share, but for each share you get ownership in Nissan worth EUR 50.
There is not going to be one obvious day where we can say the Euro Crisis is over. We don’t know whether the European economic recovery will stall in the short term, or accelerate. However, we remain confident that our portfolios offer large discounts to intrinsic value, and this will drive strong long-term performance.
The attached ‘Letter to Shareholders’ gives a perspective on the events of Q2 from Sparinvest’s Value Equities team, traditional value hunters in the style of Benjamin Graham.
If you have further questions, please do not hesitate to get in touch.
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