London-based South African money manager Sean Peche is flying right now, with a value-based approach elevating his Ranmore Funds into the top one percentile according to performance monitoring company Morningside. Peche has shared some of the love with the BizNews tribe – recommending two stocks that shot the lights out since being included in our model portfolios. In-form Peche explains to BizNews’s Alec Hogg how his process of seeking value and ignoring fashion helped him dodge performance-killing bullets – and a warning that the next shoe to drop could be a downrating of shares in top-quality multinational companies.
Watch the interview here:
Please see the timestamped topics below:
00:00 – Introduction
02:08 – Ranmore Fund’s performance
04:07 – Does a stock’s move from a ‘growth stock’ to a ‘value stock’ last?
06:39 – Giving your money to a wealth manager vs doing it yourself
07:41 – Ninety One’s results
09:43 – Stopping growth to avoid hindering performance
11:20 – Associated British Foods
12:09 – Analysis of European stocks
13:21 – John Biccard’s ‘Lucky Sevens’
14:16 – European stocks and banks which stand out to Sean
15:34 – Developments in the crypto market
17:21 – Whether or not there might be another stock market drop
Sean Peche on Ranmore funds being in the top 1% of funds [02:55]
It has been great. And you know, that’s the latest Morningstar data we’ve seen. It’s in the peer group and it’s the top percentile year to date over the last one and two years. And I think it speaks to the fact that we are so different from everybody else. We just value investors. We don’t care about the benchmark. We are going to buy what we think makes sense. You will have seen so far this year, I mean, tech has been a disaster and many of these growth companies have fallen on hard times. We have dodged that. So, we’ve managed to do that even though we took a hit from Russian equities. Hopefully that just speaks to our process and the merits of making sure we worry about the margin of safety and the downside, because that’s a big element. You don’t lose too much and you can compound the gains. That is important. You don’t want to go down too far because if you go down 25%, you’ve got to go 33% to get back. If you go down 50%, you have to go up 100% to get back to where you were. So, minimising the drawdowns is critical, an essential part of a process.
On whether it lasts when the market moves from growth stocks to value stocks [04:46]
Value has underperformed growth since 2007. I believe anybody who thinks this is going to be over in a couple of months is mistaken. These markets move in long cycles. I think we’re at the very beginning and what is interesting, you know, we last spoke on 3 October. I had a look at my diary and if you recall at the time, the sentiment was very negative. I made a comment that the Association of American Individual Investors, the bearishness, was almost unparalleled; I think 61%. In the previous week, the survey had shown that 61% of individual investors in the US were negative and thought the outlook for the next six months was down. That has only happened four times since 1995, out of 1,428 weeks end. And that’s the individual investors. Now the September Bank of America fund manager survey. They go and survey fund managers, not individual investors. They were 371 panellists, one covering $1.1 trillion. They had the highest cash levels in 21 years, and the most crowded trade was long US dollar and short Europe. Everyone was underweight in Europe. Now, since the end of September – which is pretty much when we spoke – North America is up 10. The world index is up 11.7. Europe in dollars is up 19%, the euro is up 6%, and the yen is up 3.8%. We spoke at the time and I think I said, ”Listen, if you can’t invest now, you should actually find something else. You can see, you know, so you have to make the difficult decisions. And if you can do that and stay the course and, of course, by all means, invest yourself, but maybe not invest all of your money yourself – but you can just see that if you get the timing right and you go against the crowd at the right time – it can be very profitable.
On capping the size of Ranmore to ensure market growth [00:10:22]
Yeah, definitely. I mean. Absolutely. And I’ve got a pledge. It’s public, on our website and, obviously, it’s a million miles away from where we are but it is one of the benefits that if you’re small and nimble, you can take advantage of some of the smaller companies. I’ll give you a perfect example. We bought a UK retailer called Halfords. In the midst of the crisis, when there was all that chaos going on and bonds are falling and the currency’s falling, and you go, well, hang on, these guys are quite defensive. You have to get your car MOT’d, etc. We thought we were buying it at four and a half times earnings. We could buy a meaningful position. And the stock, I think that stock is up 25% to 30% or whatever since then. And you can move the needle. But if you’re a massive asset manager with hundreds of billions under management, you cannot buy Halfords; it’s a £400 billion company. You know, even the ABF (Associated British Foods) has been doing amazing and it had great results. They announced a buyback and it’s up quite sharply, but that’s a £10 billion company and half of it is owned by the Weston family. So you have £5 billion of tradable equity and it trades one to one-and-a-half million shares that’s £14 million, say, a day of trade. If you are running $100 billion, it can take you a long time to build up a position in ABF. And yet it’s a £10 billion company. So I think size is a big factor. Big factor.
On whether it’s a good time to be buying European stocks [12:32]
We have more than 50% in Europe now, which is very overweight and it’s just because that is where we find the value. If you look at what’s happened in recent months, we can see every day Putin is pulling back in this war; he’s losing the war. It has been mild this weekend. I think we are 19 degrees in the UK. So gas storage is full and electricity prices are falling and maybe we don’t have as deep a recession as elsewhere. You know, these tech layoffs that you’re reading about in the US on a daily basis, I would think a lot of those are taking place in the US and so I find Europe very attractive; we’ve got lots of companies on, you know, five, six, seven times earnings, 9% dividend yields. And, these are well-known businesses.
Alec’s interview preparation includes creating a mind map of his talking points, we thought you would enjoy perusing them as you watch the interview:
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*Performance data to 11.11.2022
Copyright © 2022 Morningstar UK Limited.
Peer group for ranking:
Morningstar Category EAA Fund Global Large-Cap Blend Equity = Europe/Africa/Asia-domiciled funds that invest in global large-cap value and growth shares