08/07/2015 - Market Commentary
European Capital Partners Market Commentary June 2015
European equity markets corrected by 4.63% during June bringing down the YTDperformance to 12.75%. The culprit is the unfolding of another episode of the Greek tragedy
that cumulated in a break-down of the negotiations, the non-payment of a debt tranche to
IMF and a Greek referendum. While we believe the direct financial consequences of an
eventual Grexit are manageable, its political price should not be underestimated. For the very
first time, the common project of constructing a European Union risks going into reverse.
That sends out two strong messages to its members and the outside world: first the common
currency can be undone and secondly the European Union and the Eurozone as economic
and political blocs have cracks and design issues. While the situation in Greece is serious and
concerning, we should however not neglect what is going on elsewhere: the Chinese A-shares
market bubble is bursting with more than 2 trillion USD of its market capitalization wiped out
in a matter of weeks and global sovereign bonds had their worst quarter since the initial Fed
Tapering shock in Q2 2013. Our “long only” strategy is down 4,36% during the month,
outperforming its reference index MSCI Europe by 0.27%. For the year, the strategy is up
14.27%, 1.52% more than its reference index.
Bellway was the top contributor to the fund adding 0.09%. The company came out with
another solid trading statement showing margin strength and an order book up 22% yearon-year. As our fair value is now reached, we are currently selling the position. Wincor
Nixdorf contributed 0.08% on renewed speculation on a take-over approach by competitor
Diebold. While our investment case is not based on such take-over speculation, the sheer
existence of these rumors confirm investors realize how low the valuation is. We still believe
it is only a question of time till European banks will upgrade their ATM’s to newer safety and
IT standards and hereby reignite demand for Wincor’s products in its most important
European markets.
Syngenta was the biggest detractor to performance as the stock dropped 11.32% during the
month. When the news on the Monsanto bid initially spread in May, we stated in our monthly
comment that “we are watching the situation… while Syngenta’s management blocks off a
deal that would be in the interest of us as shareholders.” In our mind, this is exactly what
happened with a solid “No” campaign run by Syngenta. We decided to sell our position.
Autoliv detracted 0.27% on no specific news. We remain invested.
During the month we sold Michelin. This is one of the situations where the margin of safety
is less than 10% and we found another investment opportunity in the automotive sector with
a margin of safety of more than 40%, namely Volkswagen. We have several new investment
opportunities in our pipeline which should lead in the coming weeks to an increase in the
number of holdings above the current 36.
Hedged Portfolio
In the current environment of higher volatility, we are now benefitting from our prudent
decision to keep the net exposure at 35%.