Dear co-investor:
The fund has returned +3.73% since the end of the first quarter of 2021, delivering a +29.95% return year to date and +14.57% since its launch in late 2018 (data as of 31st of August 2021).
Small and micro-cap companies account for 70% to 75% of Azvalor Managers fund’s portfolio, which also benefits from broad diversification across sectors and regions. Each company in the portfolio has been carefully selected by one of the four international investment-management boutiques that comprise the fund. It is worth noting that three companies in the portfolio have been targeted for takeovers in recent months. The targeted companies are in very different sectors and the bids were made at prices that significantly surpassed our average entry price:
- CAI International (CAI, Financial): company dedicated to intermodal container leasing and sales. The bid made by Mitsubishi HC Capital Inc. is 80% over our average cost.
- Verso Corp (VRS, Financial): North American producer of coated papers. The bid made by Atlas Holdings LLC is 50% over our average cost.
- American National Group (ANAT, Financial): Insurance company. The bid made by Brookfield Asset Management is 130% over our average cost.
We believe this is a logical consequence of our investment philosophy of buying companies trading in the stock market at significantly lower prices than their estimated fair value, and then waiting patiently for the market to reflect said value one way or another.
In this sense, although we can not predict short- or medium-term fluctuations in the share prices of the companies in our portfolio, taking a long-term perspective we do know that our stocks remain materially undervalued. The fund’s valuation ratios indicate discounts of over 50% relative to the global equity market (source: Morningstar). Seldom have we seen such substantial discounts since the fund’s launch, and we think this opportunity provides an ample margin of safety that will leave us well positioned to outperform the market in coming years, considering the financial strength of the companies in the portfolio and the positive progress of their underlying businesses in recent quarters. It is worth noting that there is practically no overlap of our portfolio with global equity indices.
Investors should not expect to see the fund deliver positive returns or market outperformance in a straight and uniform line, as this rarely happens in the investment world. In this sense, the recently released GMO report “Value vs Growth Reversals: Never a Straight Line” (see chart below) shows that, even the best three-year period in the history of the value factor vs. the growth factor (February 2000 to February 2003) included some of the all-time worst months for value vs. growth (since 1979). The report reads: “If any investors had lost their nerve during any one of these drawdowns, they would have also lost out on the trade of a lifetime.”
Lastly, we would like to report that Azvalor Managers was recently invited to take part on GuruFocus Value Investing Live, a leading global platform specialized in investments. Javier Sáenz de Cenzano and Chris Mittleman were honored to appear on a channel that has featured legendary portfolio managers such as Bruce Greenwald, Jean-Marie Eveillard and Mario Gabelli (Trades, Portfolio). The full video is available on Azvalor’s YouTube channel (link here).
As we have stated in the past, we are fully committed to Azvalor Managers, and we wish to reassure investors that we manage the fund as if it were our own capital because, in fact, it is. We continue to invest our personal savings in the fund, as anchor investors.
Once again, we wish to thank you for your trust and we welcome any questions or comments to our Investor Relations team and/or Azvalor Managers’ head, Javier Sáenz de Cenzano.
Sincerely,
Azvalor SGIIC
