Overstone Global Equity Fund
A focussed global equity strategy with a classic, contrarian value approach to building long-term value.
Investment objective
The Fund will attempt to achieve over the long term a total return in excess of that of the MSCI World Index (with net dividends reinvested) through investment in a concentrated portfolio of equities of predominantly large companies, selected from all the major markets and to a lesser extent from some emerging markets, worldwide. The approach is classic contrarian value, based on bottom-up fundamental research of individual companies. The average market capitalisation of companies represented within the Fund is likely to be more than US$20 billion.
Fund particulars
| Launch date | 01 June 2005 |
|---|---|
| Fund size | US$470.0m |
| Domicile | Ireland |
| Structure | QIAIF |
| Base currency | USD |
| Dealing | Daily |
| Min. investment | €100,000 |
| Benchmark | MSCI World |
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 Merrill Lynch Investment Management ('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. Nigel is Managing Partner of OP. He co-manages the global and EAFE equity portfolios and contributes to the overall investment selection.
Latest publications
Latest publications
Global Equities Strategy
Latest publication
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Commentary
The good times are seemingly back. A new bull market theme has emerged in Artificial Intelligence (AI). In May, Nvidia joined the c.$1tr market valuation club, after projecting its sales would rise to $11bn next quarter, taking its share price gain for the year to more than 180 per cent. Company CEOs are now falling over themselves to talk up their AI credentials (see WPP’s link to Nvidia) in the hope that they will enjoy a similar beatification. Today Nvidia has a market capitalisation of c. $1tr on historic sales of $27bn (c.$40bn now expected in the current year), which means it is trading on 37 times historic (25 times expected) sales. This metric is sales, not even EBITDA or the often fictitious ‘adjusted EBITDA’ used by many tech company CEOs and while those sales could grow rapidly in the new world of AI, they need to multiply several fold to make any sense of this valuation. We have been here before.
The cautionary tale of Sun Microsystems has featured as a footnote in the financial press recently. During the 2000 tech bubble, Sun Microsystems was a stock market darling and its share price rose to $64 before crashing to $10. Its co-founder Scott McNealy later challenged the valuation discipline of investors who had bought or held his shares at the peak. “At 10 times revenues, to give you a 10-year payback, I have to pay you 100 per cent of revenues for 10 straight years in dividends,” he said. “That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard for a company with 39,000 employees, assumes I pay no taxes, [and] assumes that with zero R&D for the next 10 years I can maintain the current revenue run rate. What were you thinking?”.
While AI is not new (remember IBM’s Watson), there have been remarkable advances in the last year or so. The rapid pace of developments is worrying many. A statement released by the Center for AI safety, including leading CEOs and scientists simply said, “Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war.” It is uncertain how AI will progress over the next 25 months, and who will be its winners and losers, let alone over the next 25 years. We prefer to focus on profits, cash flows and assets over our investment horizon, grounding everything in our Value discipline.
The US market has shown signs of overexuberance and overvaluation for several years, but this is now getting long in the tooth. The ending of Quantitative Easing (QE) and the era of free money represents a structural shift, not a cyclical one. With this ‘regime change’ the things that have worked for investors such as Growth, Momentum and a disregard for valuation will be upended and reversed. We see Nvidia as the last hurrah of an investment era where valuations did not matter and lost all touch with fundamentals. We are certain that this will change.
Commentary
At the stock level, the largest negative contributors to relative performance, in order of their impact, were NOV (-16%, total return in local currency), Bayer (-8%), LG H&H (-15%), Lloyds Bank (-8%) and BT (-8%).
NOV is a leading US oil services company which we bought in Q1 2020 with the dislocation in the oil price. This was after a long period of severe capital retrenchment in its industry. This was our second-best performer in 2022, when the share price increased over 50 per cent. It has given up some of those gains this year on profit taking, but our view of fair value is unchanged and the fundamental outlook continues to improve. Over the last twelve months forecast earnings in the market have risen by 60 per cent, which means it trades on a forward price to earnings ratio (P/E) of just nine times.
The largest positive contributors to the fund’s relative return during the month, in order of their impact on relative performance, were Samsung (+9%), MUFG (+9%), Exor (+4%), Siemens (+4%) and Southwest Airlines (-1%).
The fund offers authentic contrarian value with a highly attractive weighted average upside on a two-year view of over 60%. This is on estimates and valuations for the individual holdings that we think are conservative, providing a good margin of safety. The strategy has a forward P/E of 9.4 times and a price to book multiple (P/B) of 1.0. This portfolio valuation is at a substantial discount to the MSCI World and the MSCI World Value indices.
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