In April, the Fund showed strong positive absolute and relative performance. The return of the Fund outpaced both the MSCI World Index and the MSCI World Value Index. Whereas the value index ended the month about where it started, the MSCI growth index declined by 8% indicating a big divergence between the two investment styles. The change in sentiment is a tailwind for our strategy. Notwithstanding this tailwind, strong stock selection was the main driver behind the strong relative performance. The sector that contributed most to the absolute performance of the Fund was the energy sector (John Wood did well). The sector that detracted most from the absolute performance was the financials sector (Blackrock performed poorly). However, from a relative perspective the financials sector added modestly to the performance. The sector that added most to the relative performance of the Fund was the technology sector. We have a relatively modest weight in technology stocks. Technology stocks were out of favor in April. E.g., the tech-heavy NASDAQ was down 13% last month. The sector that detracted most from the relative performance was the real estate sector (St. Joe declined modestly).

One of the contributors to the performance over April has been John Wood Group (up 29%). Wood Group is specialized in the consulting, engineering and management of projects in a broad range of industrial markets, with an important bias towards oil and gas. The management team is shaking up the company and is in the process of selling the Built Environment business. The competitive bidding process for this business will be finished in the second quarter of 2022. We believe that this transaction will make it clear that the remaining parts of the business are substantially undervalued. We therefore expect that the shares may continue to do very well over the next few months.

One of the detractors from performance was Blackrock, declining 20%. The American asset management company reported quarterly earnings. Although earnings were in line with expectations, investors are worried that the recent weakness in capital markets will lead to lower fee income. We believe that Blackrock is able to adjust their cost base to potentially negative fee income developments. Also, assets continue to grow, driven by passive products. The shares currently trade at a price/earnings ratio of 14 times 2023 consensus earnings. For a cash generative business with long term growth prospects, we believe this is too low. The dividend yield of around 3% remains attractive.

In April we have added 2 new positions to the portfolio. The first new position is Telefonica. Telefonica is active in fixed and wireless telecommunication across Europe (Spain, Germany and UK) and Latin America. They currently are market leader in their home market Spain, which is also their largest market (~30% of revenue). The Spanish market is seeing consolidation in the market, which we believe this will lead to a more stable pricing environment. Brazil is also a consolidating market, which should eventually lead to improving profits. Telefonica has lowered its debt levels by selling infrastructure and non-core assets. These developments are not yet fully reflected in the share price. The current dividend yield of around 7% is attractive. The second addition to the portfolio is Chesapeake Energy. This US shale gas producer is benefiting from very high natural gas prices. The high natural gas prices result in substantial free cash flow generation, which are not reflected in the share price. We have carefully evaluated Chesapeake’s ESG profile. The company has various policies that are clearly better than industry standards. E.g., it uses 3 walls of casings around the wellbore, it provides details about greenhouse gas emissions, and management compensation is dependent on achieving environmental and safety standards. Natural gas can be seen as a transition fuel in the move towards renewable energy. We actively engage with management to further improve the ESG profile of the company.

To finance the 2 new purchases, we have also sold 2 of our holdings: MTN Group and Groupe Bruxelles Lambert (GBL). MTN’s share price had done very well over the last 2 years (up more than 4 times). Investors are enthusiastic about the growth prospects of this African telco. This is reflected to a large extent in the valuation of the business. We see better value in Telefonica. GBL is a Belgian holding company with stakes in listed companies like Adidas, SGS (testing and inspection services), and Pernod Ricard (spirits). The sum-of-the-parts valuation was no longer providing enough upside to warrant our continued investment. Similar to our sale of MTN Group, we see better value elsewhere.

The valuation dispersion between, and within regions and sectors remains at a very high level. We are still able to find companies that are cash generative, have market leading positions and embrace and benefit from digitalization and ESG trends. These companies are definitely not priced for that and are in our view a very interesting investments both in relative and absolute terms. In summary, the current environment offers the opportunity to buy a well-diversified portfolio with solid earnings power at an attractive valuation. In addition, ESG (Environmental, Social and Governance) is fully incorporated in our investment process.