Bitcoin Pantheon

February 12, 2021

4:23 pm

We have seen a number of positive profit warnings across the portfolio in recent weeks, which in aggregate, have had a beneficial impact on performance.

As the chart below demonstrates, consensus earnings estimates at the start of a year almost always turn out to be wrong by the end of that year – sometimes by a small amount, sometimes by a very significant amount. Our investment approach aims to exploit these abundant market inefficiencies by identifying situations where the consensus has inaccurately forecasted a company’s future prospects.

Bitcoin piggy bank

Source: Bloomberg as at 31 December 2019

  • Economists and financial commentators are always keen to offer precise definitions for money. Those in favour of modern monetary theory (MMT) say money is the creation of the state and exists only to pay taxes. A slightly broader definition would be that money exists for the discharging of debts (so taxes and other things like paying the bill after dinner out). What is often quite funny about this way of looking at the world is the sort of definitions you end up with tend to be very narrow, and also are rarely of the sort that the average person on the street would recognise as anything to do with the real world. If you slip a few £20 notes into an envelope for a nephew or niece’s birthday, what has that got to do with paying taxes or discharging debts? Money is certainly being used (in this case as a gift), but is it being used in the wrong way?
  • With this in mind, it was interesting to see towards the end of 2020 that the Bank of England (BoE) was becoming increasingly concerned that despite a plunge in the usage of cash (notes and coins) and a corresponding increase in digital payments (touch, chip-and-pin), the amount in cash in circulation had shot up. BoE data showed that cash in circulation had risen by £7.9bn to £78bn (“£8bn of cash under our mattresses gives Bank a headache”, Sunday Times, 29/11/2020).
“Virtual currencies are not currencies, they are not regulated and not guaranteed by a central bank or a deposit guarantee scheme. They are highly volatile and speculative investments, bearing a number of risks including total loss of investment.”

And so, in the last few weeks, we have seen some of the portfolio activity undertaken earlier in the year to take advantage of these uncertain market conditions begin to pay off. Last week alone, we saw positive announcements from Danish jewellery business Pandora, Swedish online gambling operator Kindred, German online fashion company Global Fashion Group, Danish healthcare business Novo Nordisk and British gaming group GVC.


Source: Bloomberg as at 31 December 2019

Sometimes the positive trading update itself is less relevant than the share price performance in the weeks leading up to it, and quarterly results need to be seen in the context of our longer term investment approach. We evaluate stocks based on our view of their potential over the next three to five years and how that compares to consensus expectations. Over shorter time periods, these earnings announcements are signposts against which we can check the progress of our investment thesis.

"Even a stopped clock tells the right time twice a day."

Nevertheless, these stocks, and others like them, have provided a collective boost to performance which we believe can continue. Our investment approach relies on judgements and we won’t always make the right calls, at the right moment, every time. However, our collective experience and disciplined investment approach have combined to deliver a consistently positive hit rate in recent years, which is evidence that we’ve been getting more of these judgements right than we’ve been getting wrong. The RWC Continental European Equity Fund and the RWC European Equity Fund are fast approaching their three-year anniversaries now, and the encouraging performance thus far bears testament to this successful hit rate.

Last week’s highlights

As mentioned above, the world’s largest jewellery brand, Pandora, provided a positive contribution to performance last week following a positive update which confirmed that trading remains ahead of expectations. Organic growth rates continue to improve, and the shift towards higher margin online sales is having a positive impact on profitability. Meanwhile, the new management team’s brand initiatives also appear to be bearing fruit, which bodes well for Pandora’s longer-term growth potential across all its key regional territories.

The team held an interesting meeting with sports brand business Puma last week. This is not a current investment but was one of several meetings recently that have provided interesting insights into consumer behaviour during the pandemic. Lockdowns, social distancing measures, and other policy initiatives designed to hinder the spread of the virus, are having a massive impact on spending decisions. Consumers are collectively still consuming, but money that was last year directed towards holidays, trips to the cinema, rock concerts and other forms of social entertainment, has this year been directed towards smaller and more frequent purchases. Sportswear businesses have benefited from this, as have electrical goods manufacturers, fashion retailers and indeed some logistic companies that are responsible for shipping these goods to market. There are many winners and losers in this new dynamic but the key question for us now is, what will happen to these trends next year? More on that another time, perhaps…

Bellway, the UK housebuilder performed well last week following some encouraging data points on the health of the domestic property market. According the Halifax House Price Index, UK house prices were 7.3% higher in September than a year ago. Meanwhile, official property transaction data showed a fourth consecutive monthly rise in UK home sales and mortgage approvals have risen to the highest level since October 2007. The share prices of UK housebuilders remain well below their pre-pandemic highs (in the case of Bellway, the shares are currently more than 35% lower than they were in February), which in our view under appreciates the opportunity for recovery. Recent data from the UK property market appears to support this thesis.

Source: Bloomberg as at 9 October 2020

Unless otherwise stated, all opinions within this document are those of the RWC European and UK Investment Team, as at 13th October.

Past performance is not a guide to the future. The price of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. The names shown above are for illustrative purposes only and is not intended to be, and should not be interpreted as, recommendations or advice.

"Even a stopped clock tells the right time twice a day."
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