The heavy fall in Spanish equities during the Catalan confrontation has led to a classic ‘value’ buying spree at Spanish value manager azValor.
In a classic ‘value’ move by veteran investors Alvaro Guzman and Fernando Bernad, azValor sharply switched out of a 22% cash position in its Iberian portfolio earlier this year, down to less than 5% by the beginning of November, as other shareholders sold out of quality Spanish companies.
The ‘value grab’ has boosted the long-term upside potential value of the Iberian fund by 55% up from 40% – so giving an indicative value of up to €200 per share. Guzman and Bernad point out that while nothing is guaranteed, were the value that they perceive in the portfolio to be realised, then over a three-year period, investors would receive a 15% annual compound return from the current market value of €130 – or 9% if value is realised over five years.
The duo’s focus for new investment has been in Iberian stocks such as Almirall, FCC and Jeronimo Martins, while increasing the weight in Technicas Reunidas.
In their most recent quarterly newsletter to clients – which aims to educate investors in the rigorous disciplines of the value style of management – senior partner Alvaro Guzman readily admits that they are “not infallible” in their search for long term value to be generated from such investments. However, in highlighting azValor’s investment processes he points to Austrian Economist Ludwig von Mises who wrote in his thesis ‘Human Action’:
“All that man can do is submit all his theories again and again to the most critical re-examination. It cannot be contended that this procedure is a guarantee against error. But it is undoubtedly the most effective method of avoiding error.”
In the two years since azValor was founded, the rigorous investment approach adopted by Guzman and Bernad has been paying off as the Iberian Portfolio has returned +30% – some 50% up on the lows reached up by the fund in 2016.