Overstone EAFE Equity Fund
A focussed EAFE equity strategy with a classic, contrarian value approach to building long-term value.
Investment objective
The investment objective of the Fund is to attempt to achieve over the long term a total return in excess of that of the MSCI EAFE Index (with net dividends reinvested). The Fund seeks to achieve its objective through investment in a concentrated portfolio of equity and equity-related securities of primarily, but not exclusively, large-sized companies, selected from the major markets (except the U.S. and Canada) and to a lesser extent from emerging markets worldwide.
Fund particulars
| Launch date | 17 December 2018 |
| Fund size | US$19.2m |
| Domicile | Ireland |
| Structure | UCITS |
| Base currency | USD |
| Dealing | Daily |
| Min. investment | $ 10,000 |
| Benchmarks | MSCI EAFE |
| MSCI EAFE Value |
Portfolio managers
Andrew Goodwin
Nigel Waller
Andrew Goodwin
Andrew joined OP in March 2013. He had previously been employed by SVG Capital in London for seven years managing mainly European equity portfolios. Before joining SVG, he held portfolio management positions at Sovereign Asset Management, American Express Asset Management and Phillips & Drew Fund Management. He graduated from Cambridge University. He co-manages the global and EAFE equity portfolios and contributes to the overall investment selection.
Latest publications
Latest publications
Nigel Waller
Nigel is one of the founding partners of OP. He was previously at MLIM for 13 years. He was a director and portfolio manager on the global team. At MLIM he was also a member of the emerging markets and European teams in London and, from 1997 to 1999, the Asia team in Singapore. He graduated from City University. He is Chief Investment Officer and Chief Executive. He co-manages the global and EAFE equity portfolios and contributes to the overall investment selection.
Latest publications
Latest publications
EAFE Equities Strategy
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Commentary
August provided healthy absolute returns for investors but the portfolio lagged slightly versus the MSCI EAFE index. While The stocks with the biggest negative contribution on the portfolio’s relative performance were, in order of impact, Samsung Electronics (-7%, total return in local currency), Sanofi (-4%), E.ON (unchanged), Embraer (-8%) and Nokia (unchanged).
Samsung has several attractive attributes: it is the lowest-cost operator in its core business of computer memory, it generates good returns on capital over the cycle, is committed to returning 50% of free cash flow to shareholders, and it has a strong balance sheet (net cash of $80bn, equal to 30% of the current market capitalisation and providing significant support for the investment required to maintain its market leading positions). Samsung’s main business lines are semi-conductor memory, mobile phones and visual displays. It is particularly strong in memory, an area that should benefit from the structural tailwinds of datacentre growth as well as next generation technologies such as artificial intelligence. Moreover, there has been considerable consolidation in the memory industry. This consolidation has made the industry more rational by limiting the build-out of new capacity which should support pricing and profits over the long-run. Samsung is trading on 10x historic price to earnings (excluding cash) and those earnings have grown at 10% a year over the last ten years.
The largest positive contributors to performance were, in order of impact, easyJet (+28%), Mitsubishi UFJ (+13%), Nomura (+11%), Siemens (+8%) and Toyota (+13%).
easyJet’s share price was buoyed by better-than-expected cash burn reported at its August 4th investor update. We invested in April after it passed our stress test assumption of twelve months of no flying. This assumed a modest rights issue as well as the tapping of Government support without further borrowing against its fleet. Four months on, easyJet’s current liquidity is sufficient for twelve months of operating at the average levels of cash burn seen in the second calendar quarter, or nine months of no flying, with another six months of no flying coverable by borrowing against its fleet. The shares are likely to remain volatile as news on UK travel restrictions change with the rise and fall in new COVID cases across Europe, but its long-term potential remains significant as weaker players cut capacity further. We see fair value at £14.50 a share, some 130% upside from the current price.
Commentary
Three of the five top contributors in August were Japanese. The Nikkei 225 hit a 30 year high in US dollar terms late last month. The resignation of Mr Abe as prime minister of Japan does not seem likely to bring an end to Abenomic progress, sporadic though that has been. In particular, the corporate scene in Japan has gradually been changed, to a large extent because of his influence both directly in measures which have been taken – the stewardship code, for example – and indirectly because more active investors have been encouraged by his policy and rhetoric. The level of share buybacks has continued to increase, and they are financed from cash flow and cash in the balance sheet rather than, as in the US in the last wave of buybacks before COVID, through borrowings. There has been increased attention in Japan to return on assets and return on equity. Now that Warren Buffett is a nonagenarian not every action at Berkshire Hathaway can be attributed directly to him, but it is interesting that a fundamental investor such as Berkshire Hathaway, with a firm focus on valuations, should have bought shares in the five leading Japanese trading companies. While Berkshire are buyers for the long-term, such companies are likely to benefit from the cyclical recovery post-COVID as are other cyclically sensitive companies such as Toyota. The financials such as MUFG and Nomura will benefit too as the yield curve begins to steepen with recovery. We note with interest last month’s inflection in the US treasury market and curve steepening with the rise in long rates.
The upside on the portfolio remains an historically attractive 47%. The portfolio is trading at 13.1 times historic earnings and 0.8 times book compared with 18.2 times and 1.6 times for the MSCI EAFE Index.
Commentary
Commentary
Commentary
Commentary