Kooyman says, however, that those looking across financial stocks globally, as his fund does, need to bear in mind more than just cheaper share prices when thinking about long-term returns – the focus of the fund.
Short-term changes
Source: Financial Express Analytics
Long-term changes
Source: Financial Express Analytics
The general aim is to keep a portfolio of some 50 stocks out of a universe of about 300 financials, and bringing in gains of 15 per cent to 20 per cent annually over the long-term.
The portfolio approach is to look for companies that are being run well, that have good corporate governance, that may be undervalued, and which make sense as investments over the long term.
Kooyman and colleagues rely on a proprietary way of analysing data on banks and other financials as well as other sources of data. The firm updates its spreadsheets daily looking for hidden quantitative indicators of value They also spend considerable time visiting the firms themselves.
"A lot of financials in the portfolio are doing OK. The problem is the market has been selling them down, that drags the fund itself down, Kooyman said.
He said keep it simple and "go for the companies you understand." There is a balance that needs to be found between the value of knowledge and the time required to find out more. Factors looked for include historical value of assets, gearing, and return on capital.
Examples Kooyman raises include Anglo Irish, which was sold from the portfolio after concern over the strength of the Irish economy.
Gearing and exposure to commercial property are reasons why the fund is bearish towards the likes of Barclays, despite the apparent strength of the company portrayed after the UK's Financial Services Authority's involvement in stress testing the business.
That is because on the basis of historical analysis its exposure to bad debt could be greater than what has filtered through published figures thus far. Kooyman notes that the last time the UK property bubble burst in the late 1980s through early 1990s financial firms went through much greater problems than Barclays currently has despite having lower estimated levels of gearing on the books.
The fund is based on bottom up stockpicking, which means visiting some 300 banks annually, Kooyman added.
Emerging markets
Banks in emerging markets are far better placed in respect of gearing levels, Kooyman argues.
In developed markets most currently face the choice of shedding loans or raising more capital. Some banks say they do not need to engage in rights issues, but the proprietary research method suggests they still do, Kooyman says.
Emerging markets banks by contrast are better of by a number of measures, including capitalisation ratios and bad loan ratios.
Going forward banks in the West will have to contend with two massive weights bearing down on their growth prospects: increased regulation and the need to continue reducing gearing.
These banks will therefore not be able to maintain the same rates of return as seen over the past decade at least. This raises the need to find countries where growth rates are good and banks are not overleveraged.
Currently emerging markets banks are oversold, Kooyman believes. From the Western investor perspective a major challenge remains the political risk premium.
But, contrast that against other types of risk, such as the likes of Barclays and other UK banks being encouraged or even forced by the UK government as a rescue quid-pro-quo to lend more. This raises the issue of these banks lending to those who are mis-pricing risk, Kooyman warns – the very thing behind the rise of toxic debt on banks’ books, and which sparked the credit crisis that has developed into a global recession.
And not looking to emerging markets means the risk of missing the great stories, he adds, such as South Africa’s Standard Bank, which has managed to maintain earnigns and dividend growth since the 1980s.
Largest holdings
|
Holding |
% |
|---|---|
|
NOVAE GROUP |
5.0 |
|
TR TURKYIE TURQUOISE INVESTMENT BALANCED |
4.6 |
|
UBS AG |
4.0 |
|
BERKSHIRE HATHAWAY INC |
3.9 |
|
SCOR |
3.8 |
|
IDB ALCHEMY N.V |
3.7 |
|
BANRISUL |
3.7 |
|
ADIRA DINAMIKA MULTI FINANCE TBK |
3.6 |
|
TURKIYE HALK BANKASI A.S |
3.2 |
|
MAHARASHTRA SEAMLESS |
3.2 |