The iMGP Oldfield International Value Fund declined 0.58%% during the fourth quarter of 2021, lagging its benchmark MSCI EAFE Value NR (+1.17%), and MSCI EAFE NR (+2.69%). The Morningstar’s Foreign Large Value Fund peer group gained 2.26%. For the year, the fund is up 13.21%, ahead of EAFE Value by 232 basis points and its peer group by 139 basis points.
Since its inception November 30, 2020, the fund has risen 20.00% beating its value benchmark and peers which were up 15.80% and 17.61%, respectively.
Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the funds may be lower or higher than the performance quoted. To obtain standardized performance of the funds, and performance as of the most recently completed calendar month, please visit www.imgpfunds.com.
Discussion of Performance Drivers
Portfolio managers Nigel Waller and Andrew Goodwin build the iMGP Oldfield International Value portfolio of about 25 stocks, focusing on only their highest-conviction ideas and ensuring proper diversification across regions, sectors, and other investment drivers that companies in their portfolio may have in common. As such, sector and country allocations are largely a byproduct of their stock picking.
| Sector Weights | Fund | iShares MSCI EAFE Value ETF as of 12/31/2021 |
|---|---|---|
| Communication Services | 6.3% | 5.7% |
| Consumer Discretionary | 9.5% | 9.2% |
| Consumer Staples | 8.8% | 8.0% |
| Energy | 4.2% | 6.2% |
| Finance | 22.3% | 26.3% |
| Health Care & Pharmaceuticals | 12.6% | 8.9% |
| Industrials | 20.3% | 11.7% |
| Information Technology | 7.7% | 2.3% |
| Materials | 0.0% | 10.0% |
| Real Estate | 0.0% | 4.9% |
| Utilities | 7.1% | 6.3% |
| Cash | 1.3% | 0.5% |
| 100.00% | 100.00% |
| Regional Allocation | Fund | iShares MSCI EAFE Value ETF as of 12/31/2021 |
|---|---|---|
| Asia ex Japan | 13.3% | 3.7% |
| Australia/New Zealand | 0.0% | 7.1% |
| Japan | 18.4% | 22.1% |
| Western Europe and UK | 62.1% | 64.7% |
| Latin America | 4.9% | 0.3% |
| North America | 0.0% | 0.9% |
| Middle East | 0.0% | 0.7% |
| Cash | 1.3% | 0.4% |
| 100.00% | 100.00% |
Our attribution analysis shows:
- Stock selection was the primary driver behind the fund’s underperformance during the quarter. Sector weightings had a negligible impact on relative performance. From a regional/country perspective, underweighting Japan and overweighting EM Asia was a slight positive for performance, while an underweighting to Switzerland offset the benefit somewhat.
- Stock selection was the strongest in the technology and consumer-staples sectors. In technology, Nokia (discussed below) and Samsung drove performance. In consumer staples, the Oldfield team’s long-standing holding, Tesco, delivered strong absolute performance.
- On the negative side, stock selection was relatively poor in health care, with Fresenius declining in the teens, and in industrials, with easyJet continuing to underperform. Both stocks are discussed below.
Commentary from Oldfield Partners
Market Comments
Over the last 10 years central banks globally have embarked on an unprecedented monetary experiment in the form of Quantitative Easing which has clearly benefited asset prices. At the start of 2009, the US stock market had a value of $9.1 trillion versus US GDP of $14.6 trillion (0.6 times). At the end of 2021, the US stock market had a value of $48.5 trillion versus the latest US GDP data (third quarter 2021) of $23.2 trillion (2.1 times). From the end of 2008, the Federal Reserve’s balance sheet has increased from $0.9 trillion to $8.8 trillion as at the end of 2021 and more debt was accumulated in the last two years than in the previous ten. This is now coming to an end. From the start of 2009 to end of the third quarter 2021, the US economy has grown its GDP by a comparable amount; $8.6 trillion. However, the subsequent rise in the value of the US stock market has been $39.4 trillion (as measured by the Wilshire 5000) from start 2009 to end 2021. Clearly the US stock market was [attractive] in 2009, but it was already expensive (certainly relative to other markets) some years ago. It has carried on getting more expensive and on several, admittedly high-level, measures such as the Shiller P/E, EV/sales, and the Buffet indicator (market capitalization to GDP) it is now as expensive as it has been at any time in its history.
Top 10 Contributors as of the Quarter Ended December 31, 2021
| Company Name | Fund Weight (%) | Benchmark Weight (%) | 3-Month Return (%) | Contribution to Return (%) | Country | Economic Sector |
|---|---|---|---|---|---|---|
| Tesco PLC | 5.41 | 0.35 | 16.35 | 0.80 | United Kingdom | Consumer Staples |
| Samsung Electro-Mechanics Co Ltd | 4.53 | 0.00 | 10.82 | 0.62 | South Korea | Information Technology |
| E.ON SE | 4.84 | 0.19 | 13.20 | 0.61 | Germany | Utilities |
| BT Group PLC | 6.12 | 0.23 | 8.05 | 0.49 | United Kingdom | Communications Services |
| Exor NV | 6.26 | 0.08 | 6.25 | 0.35 | Netherlands | Financials |
| Nokia Oyj | 2.22 | 0.33 | 14.93 | 0.31 | Sweden | Information Technology |
| Siemens AG | 5.58 | 1.53 | 5.56 | 0.30 | Germany | Industrials |
| Embraer SA ADR | 4.74 | 0.00 | 4.41 | 0.22 | Brazil | Industrials |
| Lloyds Banking Group | 6.07 | 0.55 | 3.11 | 0.19 | United Kingdom | Financials |
| Eni SpA | 4.43 | 0.42 | 3.85 | 0.17 | Italy | Energy |
| Toyota Motor Corp | 4.23 | 2.29 | 2.00 | 0.11 | Japan | Consumer Discretionary |
Edited Oldfield Commentary on Selected Contributors
Nokia
Nokia, a European telecom-equipment supplier, was a strong contributor to portfolio performance. At the time of purchase, we believed we were taking advantage of what our research identified as short-term weakness in profitability due to cost overruns and delays owing to issues with its chipsets. The share price had fell from around €5.50 to €3.50, and its valuation offered a compelling value opportunity. We were convinced that its longer-term prospects warranted a higher price. The competitive environment was also improving with the US curtailing Nokia’s most powerful competitor, China’s Huawei. Through 2021 Nokia has demonstrated good progress in restoring its margins and this improvement in its fundamentals has been reflected in the share price, which recovered to €5.57 at year end.
Tesco
Tesco, the UK’s largest supermarket operator, has demonstrated strong top-line performance throughout the second half of 2021, winning customers from the other three large players. Private equity acquired both Asda and Morrisons in 2021, two of Tesco’s main rivals. This not only highlights value in the sector but means that we can expect a more rationale market and for Tesco’s top line to continue to benefit. The valuation multiples paid by private equity were well in excess of those for Tesco, despite it being the market leader and having better positions in convenience and on-line and so should command a premium. This has highlighted the value in the Tesco shares, and it delivered a 15% return in the fourth quarter.
Top 10 Detractors as of the Quarter Ending December 31, 2021
| Company Name | Fund Weight (%) | Benchmark Weight (%) | 3-Month Return (%) | Contribution to Return (%) | Country | Economic Sector |
|---|---|---|---|---|---|---|
| EasyJet PLC | 4.76 | 0.00 | -15.44 | -0.82 | United Kingdom | Industrials |
| Fresenius SE & Co | 3.97 | 0.22 | -16.37 | -0.72 | Germany | Health Care |
| Alibaba Group Holding Ltd | 3.65 | 0.00 | -16.37 | -0.54 | Hong Kong | Consumer Discretionary |
| Mitsubishi Heavy Industries Ltd | 3.39 | 0.10 | -14.80 | -0.54 | Japan | Industrials |
| Mitsubishi UFJ Financial Group Inc | 5.06 | 0.82 | -7.97 | -0.42 | Japan | Financials |
| East Japan Railway Co | 2.73 | 0.18 | -12.61 | -0.38 | Japan | Industrials |
| KT&G Corporation | 0.18 | 0.00 | -6.51 | -0.28 | South Korea | Consumer Discretionary |
| Svenska Handelsbanken AB | 3.90 | 0.21 | -3.82 | -0.14 | Sweden | Financials |
| Kansai Electric Power Co Inc | 2.21 | 0.08 | -4.41 | -0.09 | Japan | Utilities |
| Bayuer AG | 4.60 | 0.64 | -1.89 | -0.08 | Germany | Health Care |
Edited Oldfield Commentary on Selected Detractors
Fresenius
Fresenius, the German healthcare conglomerate, was a new purchase for the portfolio in 2021. In the March 2021, we initiated a position after the share price had been under a cloud given the COVID pandemic which has meant a decline in the number of patients receiving dialysis in its US business and a deferral of elective procedures impacting its hospital and injectables businesses. The shares traded on a forward price to earnings ratio of around 11 times 2021 earnings, it had historically traded on a median price to earnings ratio of c.18 times. The share price initially did well, increasing from the mid-30s to high 40s but as the COVID pandemic has resurfaced the shares have fallen back again. Whilst it continues to be negatively impacted by the pandemic, we believe that the long-term fundamentals remain highly attractive and that the current valuation of 11 times represents a compelling investment opportunity.
easyJet
easyJet’s is a leading low-cost airline in Europe. Its share price has suffered through 2021 given the ongoing travel restrictions caused by the pandemic. Lower capacity and passenger numbers led to a 50% reduction in revenue to £1.5billion in 2021 versus £3.0bn in 2020, and £6.4bn in 2019. In September 2021 management raised £1.2bn in equity which weighed on the share price, but which gives the business access to some £4.4bn in liquidity and the financial strength to get through the pandemic. The cash burn during 2021 was £36m per week. The company is looking to fund additional aircraft purchases and to rationalize its costs concentrating on higher contributing bases. This will create sustainable cost savings which will further cement its superior competitive position versus the European legacy carriers. Our view of fair value is £11.00 per share, providing 100% upside.