The manager of the CF Odey Opus and INSYNERGY Odey funds says a key tenet of his investment style is to be early - one of the reasons why he has performed so well over the longer term.
“My team spend a lot of time trying to imagine how the world might be different from the consensus view. Against this background, you don't need to be a great stockpicker; you simply need to have the courage to do what the analysis is telling you to do, rather than the investing community,” he says.
“We were able to pick up some once in a generation bargains. As the bull market developed, we found a lot of people were reluctant to buy the same stock after it had risen 50 per cent, but we argued that it was still on less than 5x earnings and could double many times with some decent newsflow behind it."
“Thus, my decision to back very heavily our rigorous analysis of financial stocks such as Barclays and cyclical stocks such as Infineon and Avis, and hold on to them when others were advising us to take profits too early. That has paid off handsomely.”
Over a three and five period, Odey has outperformed his peer group, returning 5.6 per cent and 49.11 per cent respectively.
Odey return, 3-yr
Odey return, 5-yr
Source: Financial Express Analytics
Odey still has a preference for financials and this is evident in the make up of his portfolios, with over 28 per cent of the INSYNERGY Odey fund weighted to the sector.
“Last year, at a time when everyone was convinced that the World was heading into the abyss, we were very early bulls of financials,” says Odey.
“It was our belief that the banks were set to enjoy a huge margin expansion. In the pre-crash years, intense competition had driven mortgage margins down to 50 basis points or less. Many banks had introduced a plethora of arrangement fees, initial fees, etc – in an effort to eke some profit out of the business. We are concerned about the quality of some of the loan books, but in general the argument is that the margin story is much more powerful and leaves banks such as Barclays and Lloyds looking very cheap, even after their strong rises.”
Odey says the main difference between himself and his funds' Global Growth sector is that he focuses on growing wealth rather than being distracted by short-term obsessions of matching a benchmark or delivering upper quartile performance.
“A lot of fund managers sit around debating whether they should be 0.5 per cent underweight or overweight a stock that they don't like and wouldn't invest their own money in it. We find that rather odd. We have always been major investors in our own funds and when we buy something, we are saying that we think it will make money, not that it will just perform less poorly than an index,” he says.
Looking ahead, Odey says his biggest concern is who to trust: companies or government.
“The corporate sector had its bear market in 2008 and good companies cut costs, hoarded cash, strengthened balance sheets and are now furiously protecting their cashflows. One must choose carefully but I am prepared to accept promissory notes from one of these companies. In contrast, governments who borrowed and spent their way through the good times are now attempting to borrow and spend their way out of trouble. It seems to us that a government promise is getting weaker,” he concludes.