In recent years, various management projects based on value investing have emerged in Spain. However, in a meeting with journalists this morning, Rafael Valera, CEO of Buy & Hold, pointed out the six points that distinguish their entity from the competition.
Consequently, he spoke of the application of that investment philosophy, not just to equities, but also to fixed income; the fact of being open to any investor (from 10 Euros); their low commissions (even in their class A funds they refund their commission if the investor loses money); its profitability objectives (unlike other managers seeking 15% -20%, the idea is to beat the Eurostoxx index by 2-3 points); the refusal to launch any other products beyond their three funds (fixed income, flexible mixed, and European equities, strategies that are also reflected in their 9 sicavs and in their pension fund), with the idea of channeling greater volumes of investment , as other management companies are doing – although Valera admits that when they reach levels they cannot manage, they will close the funds; and the firm commitment not to charge the cost of the analysis to investors under MiFID II.
This last decision is firm, even though regulations pertaining to this matter have not yet been transposed and the costs of the analysis are as yet unknown; and this differentiates them from other entities, such as azValor, Bankinter Gestión de Activos or Bankia Fondos, which in the past few days have announced an opposite decision. In fact, Valera explains that in recent times brokering and execution fees have been reduced to one third of their previous cost, which is something that can help achieve profitability objectives more easily. “If previously they charged 20-30 basis points for the execution and now they charge 4-5, with a portfolio rotation of 30%, the annual savings can be 12-15 basis points in the portfolio,” he explains.
But, in his opinion, even though the above does count, more than this decision on the analysis or the reduction of the execution fees, the key to achieving profitability is to invest in funds with low commissions, and they boast of having the lowest fees in Spanish value management… and even in active management (from 0.65 to 0.95 in management and a success rate of between 3% and 7%).
The entity, which has 1,200 clients, a figure they intend to “double and triple”, as with its assets (around 171 million Euros), explains that it does not seek to be a company managing billions of Euros, and that it will close the funds when the time comes and the management is complicated: although as yet they don’t have a clear figure, its president Julián Pascual pointed to 1 billion as being a high figure. All in all, Valera acknowledged that a management company like theirs “has a hard time becoming trendy”, because investors are very short-term minded and the Buy & Hold philosophy looks to the long term, to 2028, and the idea is to make money, but “with tranquility ” and without big oscillations.
Along this line of beating the indexes by 2-3 points a year (if at 10 years the index has managed to earn 259% at compound interest, the Rex Royal Blue sicav has risen 81 points higher, with dividends), Valera explains that, unlike those who seek returns of 20% and greatly concentrate their portfolios in order to do so, they are committed to diversification: “We don’t see 80% of opportunities as being very clear, we’re navigating the haze, and that is why diversification is key,” he adds.
Changes in the portfolio
For example, they don’t see the opportunities in commodities as clear, in that journey through the markets in which clear differences with other value competitors also arise. “A lot of the demand comes from China and we don’t see it clearly. In addition, the price has recovered, it’s no longer at minimums,” says Pascual. Where they do see opportunities that they have recently taken advantage of is in renewable energy and the financial and advertising sectors: in light of this, they have taken advantage of recent movements in the stock market to make changes in its portfolio, composed of 40 national and international companies. Among the most significant investments of the firm, which analyzes the entire capital structure of a company, is the purchase of shares of the Italian investment fund manager Azimut, which has very high returns on capital, a double-digit annual dividend, and a very consolidated business in Italy; with growth opportunities in emerging countries. “There are three types of managers: those of ETFs, those that provide added value (few are quoted) and a third group, in which Azimut belongs, with an average product but a large distribution capacity through a strong agency channel that receives half of the funds’ commissions – which are on average 2%, which explains their sales incentives – and opens offices in niche places, such as Turkey, Miami or Monaco.”
In addition, Buy & Hold has raised positions in the digital advertising sector (Alphabet and Facebook), as well as in agencies (Publicis and WPP). “We believe that at these prices companies have lived through all the worst predictions in the sector,” explains Pascual. He predicts similar opportunities are in wind power, where it has taken positions in Vestas and Siemens-Gamesa for its funds BH Acciones (equities) and BH Flexible (mixed fixed income and equities). “Both companies have suffered in recent months, with drops of 50%, remaining at attractive prices. In the case of Siemens-Gamesa, we see synergies not only in costs, but also in their capacity to win large tenders”, adds Pascual, who has obtained annual returns of more than 10% in the vehicles he has managed during the last 13 years.
Winning with the Catalan bond
In the fixed income part, the firm has also shown movements in the portfolio. The most prominent is the sale of subordinated bonds and CoCos of large-cap financial entities, “where we consider that prices have risen excessively,” says Valera. They have increased positions in subordinated debt of smaller banks, such as bonds issued by Cajamar, the largest Spanish rural bank. In the same way, it has bought bonds from the Galician construction company Copasa and the Portuguese Mota Engil.
The month of February ended with an annual return of 2.5% for the company’s pure fixed income fund, BH Renta Fija, when other debt funds are in losses. Among the success stories, he pointed out the purchase of bonds from the Generalitat de Catalunya in October, with which they have earned 20% in just five months, even though they represented only 5% of the portfolio. The position is not yet sold, but neither have they bought more for lack of paper. Another success story is Provident, the leading financial institution in loans and credit cards to subprime clients in the United Kingdom, of which the management company holds both bonds and shares. “We bought the bonds with yields higher than 10%, and they are currently in environments of 4% with a maturity of two years,” explains Valera. “This has meant a revaluation of more than 13% only in fixed income, while the revaluation of the shares has been 70%,” he adds. The firm still sees potential in value so it continues to maintain both positions in the portfolio.
Forum to improve investments
The management company also informed of the birth of the Buy & Hold forum, an encounter with ‘influencers’ from the financial sector that seeks to contribute to improving the investment decisions of Spanish families. The investment firm plans to hold two meetings a year in this forum to share ideas, practices or success stories of value investment. The objective is “to ensure that Spanish families are able to invest increasingly better,” said Valera.
For this, in a first meeting, the Spanish management company brought together 13 leaders in the field. “This first forum gave us the opportunity to meet personally. We are all connected and we read each other in different blogs and social networks, but we have never had the opportunity to meet in a place to talk about what we are passionate about: the world of investment,” Pascual points out. The forum is a measure adopted by the management company in order to be close to Spanish families, and adds to the financial training courses that Antonio Aspas, partner of Buy & Hold, has begun to teach. The dynamics of the forums will be an informal meeting in which the guests can share their experience, their point of view, or some success stories in order to understand other perspectives. “We have realized that many of the ideas that are shared are those that our management company tries to transmit, such as how to consistently beat the European stock indexes with dividends,” adds Aspas.
The firm’s partners agree that it’s a way to know the opinions of those people with a passion for saving, and what they think of this type of investment. “Thanks to these meetings, we know what’s on their mind, what worries them, what companies they have found interesting, and we get to know them better in order to help them. We don’t want to be a management company which isolates itself in its figures or research,” says the company’s CEO.
Por Funds Society, Madrid
Por Alicia Miguel Serrano