Ori Eyal’s EVCM Fund commentary for the month ended January 31, 2016.
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EVCM Fund Overview
EVCM is a focused global value fund. Our goal is to generate the highest possible long-term returns without risking a permanent loss of capital. Employing a disciplined value investing approach, we search the world for the best investment opportunities based on long term business fundamentals. We then construct a long-biased, concentrated portfolio consisting of 20-40 positions, mostly stocks, trading at deep discounts to their intrinsic business values.
Our in-depth research explores the merits of each potential investment in the context of a global market. Many of our investments benefit from multiple economic tail winds as they operate in emerging markets that are experiencing rapid economic growth and development. We use little or no leverage and demand a wide margin of safety for each investment.
EVCM fund – Commentary
For the month of January 2016, EVCM fund declined an estimated -7.6% net to investors vs. -6.0% for the ACWI Index and -3.7% for the HFRI Equity Hedge Index. Our only significant contributors for January were our short positions. Main detractors include: General Motors, Basket of US Financials, Basket of Korean Preference Shares, Interactive Brokers, Samsung Electronics, Qualcomm and Howard Hughes Corp.
Global stock markets declined sharply in January, apparently due to investor worries about low oil prices, a China slowdown, continued problems with the European Union and a possible recession in the US. We do not discount any of these concerns but view them all as transitory issues. The economic fundamentals for the countries and companies that we invest in remain strong. Low oil prices are a gift to the world and serve as a powerful economic stimulant. China and Europe will muddle through their issues (as they always do), and the US remains the world’s economic superpower. With interest rates around zero, stocks are the only attractive investment vehicle and will continue to benefit from investor capital flows. We view the current price declines as a buying opportunity.
Almost all of our investments declined in January due to non-fundamental reasons. When a stock that we own declines, we re-analyze our investment thesis and ask ourselves if it is still valid. Did something fundamental change for the company? Did we make a mistake? We have just completed a full review and re-examination of every company in our portfolio. Our conclusion is that our portfolio companies are in great shape, are growing value over time, and are trading at huge discounts to their intrinsic economic values.
We are amazed at the bargains that Mr. Market is offering us. Howard Hughes Corp, arguably the best real-estate company in the world, trading at 50% of net-asset value. Citibank and Bank of America, two pillars of global finance that have made great improvements since the financial crisis of 2008, both trading around 50% of book value. Our basket of Korean Preference shares – all good, profitable, dividend paying business – trading at an average 55% price discount to their (already cheap) respective common shares. Israel Discount Bank, after making strong progress on its multi-year turnaround plan, trading for 50% of book value. Samsung Electronics, a global leader in consumer electronics, trading at 4-year lows and a 2 times EV to EBITDA price multiple. We are eagerly buying more of many of the companies that we own.
To fully benefit from a market decline, an investor should add capital as stock prices are falling. While I already have the majority of my liquid net worth invested in EVCM fund, I am increasing my personal investment and will be adding additional capital to my account. This is not a short term market call. I honestly have no idea where markets are going in the short term. Rather, I am acting to take advantage of the cheap stocks that Mr. Market is selling.
If you were also considering adding capital to your account at Emerging Value Fund, I believe now may be a good time to do so. As an added benefit, we will lower our fees to 1% management and 10% incentive fees for all new capital invested in the next 3 months.
Sincerely,
Ori Eyal
Managing Partner
