Santa Claus isn’t coming to Town…yet
As investors in London, New York and beyond prepare for the short Festive break, one character is conspicuous by his absence – Santa Claus and his feted end of year market rally. While there is still time for bruised investors to hope for some end of year relief, the numbers suggest that hope – and belief in the existence Santa Claus (and his rally) is not a strategy that Mayar can recommend.
Bah Humbug as Ebenezer Scrooge might say. However, we think that the fundamentals of the market and select businesses do give reason for optimism over the medium-term. As we identify great businesses and great companies we are also prepared for the opportunity to buy at points which offer great value. The market seems set to provide such an opportunity.
While we never make specific forecasts of where overall equity markets are heading over the short term (and we don’t believe anyone can do that consistently), valuation is usually a good place to get a general steer on expected returns. Looking at the MSCI World Index, we observe the following:
Valuations have come down substantially during the past 12 months with earnings increasing and stock prices falling. The MSCI World Index now trades at a trailing PE ratio of 16x, a 14% discount to its historical 20-year average of 18x (orange line in chart below). For comparison, in 2017 it was trading at more than 20x, well above average.
More importantly, it is now very close to a one standard deviation level below the historical average (green line in below chart), which has been a good place to be buying in the past.
Source: Bloomberg, December 2018
Different geographies have fared differently and so have different industries and stocks. This is why the Mayar Global Equity Strategy has been able to generate positive returns in 2018 in a down market. Furthermore, we have found many more attractive opportunities over the past 6-8 weeks than we have over the past two years. We expect these to perform strongly over the next 3-5 years, even if markets are volatile.
In our own valuation framework, we always think about the next 5 years starting from today. In a sense, we think like a private equity investor making a purchase today and trying to estimate an exit value in 5 years’ time to calculate an expected IRR. We perform this exercise on a real-time basis and it helps us determine when and what to purchase. Looking at our portfolio today, we estimate that it is trading at a 23% discount to our conservatively-estimated intrinsic value. This would translate into an expected IRR of 10-12% over the next 5 years.
Mayar Fund Performance
While we have been conservative during the past 2 years, we believe that opportunities are now getting more interesting. Over the past few weeks, we have deployed a significant proportion of portfolio cash holdings into what we believe are attractive opportunities.
As a result, we are not listening out for sleigh bells or leaving carrots for reindeer. Instead, we are confident that our decisions will help drive investor returns over the next 5 years.
Disclaimer
This document is prepared by Mayar Capital Advisors Limited (“MCA”), an Appointed Representative of Privium Fund Management (UK) Limited (“Privium”) which is authorised and regulated by the Financial Conduct Authority ("FCA") in the United Kingdom. It is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Within the EEA Mayar Fund (“the Fund”) is only available to Professional Investors as defined by local Member State law and regulation. Outside the EEA, the Fund is only available to Professional Clients or Eligible Counterparties as defined by the FCA, and in compliance with local law. This document is not intended for distribution in the United States (“US”) or for the account of US persons, as defined in the Securities Act of 1933, as amended, except to persons who are "Accredited Investors", as defined in that Act and "Qualified Purchasers" as defined in the Investment Company Act of 1940, as amended. It is not intended for distribution to retail clients. This document is qualified in its entirety by reference to the Private Placement Memorandum (together with any supplements thereto, “the PPM”) of Mayar Fund. Please see the section of the PPM on information required by Securities Laws of certain jurisdictions. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the PPM.
This document is provided for information purposes only and should not be regarded as an offer to buy or a solicitation of an offer to buy shares in the fund. The prospectus and supplement of the fund are the only authorised documents for offering of shares of the fund and may only be distributed in accordance with the laws and regulations of each appropriate jurisdiction in which any potential investor resides. Investment in the fund managed by Privium carries significant risk of loss of capital and investors should carefully review the terms of the fund’s offering documents for details of these risks. Mayar Fund follows a long-term investment strategy. Short-term returns will vary considerably and will not be indicative of the strategy’s merits. This document does not consider the specific investment objectives, financial situation or particular needs of any investor and an investment in the fund is not suitable for all investors. Investors are reminded that past performance should not be seen as an indication of future performance and that they might not get back the amount that they originally invested.
This document is confidential and solely for the use of MCA and the existing and potential clients of MCA to whom it has been delivered, where permitted. By accepting delivery of this presentation, each recipient undertakes not to reproduce or distribute this presentation in whole or in part, nor to disclose any of its contents (except to its professional advisors), without the prior written consent of MCA.
Comparison to the index where shown is for information only and should not be interpreted to mean that there is a correlation between the portfolio and the index. The views expressed in this document are the views of MCA and Privium at time of publication and may change over time. Where information provided in this document contains “forward-looking” information including estimates, projections and subjective judgment and analysis, no representation is made as to the accuracy of such estimates or projections or that such projections will be realised. Nothing in this document constitutes investment, legal tax or other advice nor is it to be relied upon in making an investment decision. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the "promotion or marketing" of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.
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No recommendation is made positive or otherwise regarding individual securities mentioned herein. No guarantee is made as to the accuracy of the information provided which has been obtained from sources believed to be reliable. The information contained in this document is strictly confidential and is Intended only for use of the person to whom MCA or Privium has provided the material. No part of this document may be divulged to any other person, distributed, and/or reproduced without the prior written permission of MCA.
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The investment services of Mayar are only available to professional clients and eligible counterparties for the purposes of the FCA’s rules. They are not available to retail clients. Past performance is not a guide to future performance and any capital invested is at risk.