‘If you want value, don’t look to the US’
Peter Saacke of Artemis Global Growth tells James Connington where he is finding the best ‘value’ shares
All eyes are on America at the moment, with Donald Trump’s presidency leading many to expect a pickup in inflation and interest rates, meaning that markets could be boosted. This has led to predictions that cheap, unloved so-called “value” stocks are due to outperform. The early signs of this are already being seen.
Artemis Global Growth is a £600m fund managed by Peter Saacke, who aims to hunt out these cheap investments and has the freedom to invest in companies across the world.
Mr Saacke spoke to Telegraph Money about why cheap Chinese banks were a “classic” opportunity and about his investment mistakes.
How do you pick stocks?
We take 6,500 stocks and look for valuations that are out of whack with the company’s growth prospects.
We then find out why the shares are so cheap. Sometimes we find cases where other investors’ views on a company have driven a share price so low that its long-term prospects look appealing.
The fund has a large number of holdings. Why?
It has become fashionable to build highly concentrated funds with 30 or 40 stocks. We hold 150, so when I do get things wrong – which is regularly – it’s not a disaster.
Why do you invest less in America than your rivals?
The US has performed extremely well, so company valuations are expensive.
Over the past year we have increased our exposure to cheaper “value” stocks, and America is not the first port of call for those.
Expensive “quality” stocks such as consumer staples have done well, and there are lots of people invested. But with inflation and interest rate prospects picking up, these are dangerous holdings for the foreseeable future.
Which value stocks have you bought?
We have been increasing exposure to Europe, including the UK, where there is a good selection of beaten-up stocks. We own BMW and have been buying Siemens.
But for a value idea you don’t have to look much further than Chinese banks. They trade at around five times their earnings, with dividend yields of 6pc and double-digit returns on capital. There were concerns about the bad loans they made during the financial crisis, but non-repayment rates have peaked and are going down again.
It sounds like a classic opportunity. No one wants to be seen holding Chinese banks but that doesn’t tally with the news being reported. We own Bank of Communications and Bank of China.
How have you reacted to the prospect of rising inflation and interest rates?
We got lucky. Ahead of Mr Trump’s election our process showed that the dull-as-ditchwater American regional banks were cheap, doing well and benefiting from regulators focusing on bigger banks. They performed steadily and then jumped by 25pc when Mr Trump was elected. I took some profits.
We have started to invest in European banks too, such as Belgian bank KBC and Danish bank Danske. It’s not a “Trump trade”, it’s a trade on inflation picking up.
More important in the past year has been increasing our exposure to mining and oil stocks.
What have been your biggest successes and mistakes with the fund?
The biggest success was American semiconductor maker NXP, which was one of the largest firms nobody had heard of. We bought it in 2012 and held it for three years; it is now being bought by Qualcomm.
The biggest loser was Vale, the Brazilian mining company. We saw shoots of recovery in iron ore prices and got involved too early – the stock relapsed.
Do you have your own money in the fund?
Of course – mine, my wife’s and my children’s. At Artemis we eat our own cooking and can’t invest elsewhere.
What would you have done if you hadn’t been a fund manager?
Initially I thought about academia, but realised it was more political than I anticipated. How to buy the fund as cheaply as possible
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