European Select Values
Overview
Fund manager Robrecht Wouters has a highly selective, valuation-oriented investment style, which focuses on undervalued pan-European companies that generate high returns on capital. His stock-picking approach is unconstrained by benchmark weightings and combines traditional ‘value’ investing (focusing on attractive valuations on a price-to-free-cash-flow basis) and ‘quality’ characteristics, such as high return on capital employed.
Competitive Advantage
Robrecht manages his portfolios with a highly selective, valuation orientated investment style. He aims to find contrarian investments that combine attractive valuations and a high return on capital. Absolute - not relative - valuation is the key to selecting investments. Robrecht focuses on the stocks that he owns rather than worrying about stocks in the broader market that he does not own. This approach is reflected in the constituents of the portfolio where low ROCE sectors such as financials, oil and utilities are underweighted, in favour of more defensive industries such as consumer staples. This strategy is likely to ensure that his holdings will offer significant diversification benefits when compared to other European equity strategies.
Investment Team
Robrecht Wouters, Senior Fund Manager, manages the European Values Select strategy. He joined JOHCM in September 2003 and became lead portfolio manager on the strategy in 2008.
Investment Philosophy & Process
The strategy combines a contrarian, valuation-based approach and a focus on high return on capital. Robrecht Wouters has a highly selective bottom-up, valuation orientated investment style, which focuses on undervalued companies with high return on capital employed. The approach is an unconstrained, high alpha approach and expects to generate significant outperformance.
Robrecht Wouters believes that investing in companies trading at a discount (at least greater than 25%) to their ‘intrinsic value’ will yield above average investment returns. The inefficiencies Robrecht aims to exploit centre on market time horizons. Other investors may have a shorter-term focus that leads to them selling stocks when they miss a single earnings estimate. By the same token, markets can fall in love with a stock and as a result miss perceptible weakening in its business. Most investors do not price compounding effectively. Robrecht’s focus on quality companies with high return on capital creates a good opportunity to exploit this anomaly. Robrecht takes positions in out-of-favour stocks based on detailed proprietary research and his past experience. His valuation based approach strongly encourages taking contrarian views.
Portfolio Construction
The portfolio combines traditional value characteristics across all market capitalisations with a bias towards companies with superior business models. Robrecht sees a neutral investment position as a 3% holding but this will reduce to 2% for smaller, less liquid stocks. The maximum holding in a single stock is
5%.
Typically, the portfolio will have the following characteristics:
- Benchmark unconstrained
- Fully invested
- Individual stock position sizes are similar and range between 2-4% with a maximum of 5%.
- The largest 10 holdings have typically accounted for 35-40% of the portfolio
- Sizeable sector and country positions with a bias in favour of non-capital intensive industries
- Strong emphasis on developed European markets. Investments outside of this market is limited to 10%
- Use of derivatives for efficient portfolio management
