by Jörg Billina, Euro on Sunday
ufuk Boydak was initially hired as an analyst at the Oldenburg investment boutique Loys in 2009. He has managed Loys Aktien Europa since 2014, and since 2015 he has managed Loys Global together with Christoph Bruns, which is worth 215 million euros. Both funds follow an identical investment philosophy. However, Loys Global has a more concentrated portfoliof during the Loys Shares Global less offensively designedlights is.
“Both funds invest in significantly undervalued stocks worldwide,” explains Boydak. Loys uses an in-house database to determine attractive values. Managers are also always looking for direct contact with company bosses. Boydak used the violent market fluctuations in recent months to get started. The investment professional believes a year-end rally is possible. “Anyone who is active in the stock market for the long term must also have confidence and a willingness to take risks.”
Euro am Sonntag: You have been a fund manager since 2013. Is the current stock market year the most difficult in your career so far?
Ufuk Boydak: The current phase is certainly very challenging. In the past, however, there have always been developments that have put a heavy strain on nerves and markets. How about that euro crisis, Brexit, the trade dispute between the USA and China or the pandemic. Despite the crises: DAX or S&P 500 have increased over a five or ten year period. That makes me optimistic for the future.
The economic and political framework will probably remain difficult for some time to come. What is your biggest concern?
The worst-case scenario is a long phase of stagflation – that is, persistently high prices with little or no growth at the same time. This would cause a depression in the stock market. But we’re still a long way from that.
Because the central banks manage to get inflation under control?
US Federal Reserve Chairman Jerome Powell recently stated that the Fed now has a better understanding of how little it understands about inflation. That is honest and makes it clear how complex the matter is. Nevertheless, it should be possible for the central banks to curb inflation without completely stalling the economy.
Are there already signs of this?
Yes. In many countries, consumers are reducing their consumption due to inflation or higher borrowing costs. In France, for example, the number of transactions in the real estate market fell significantly. Commodity prices are also coming back.
Has inflation peaked?
Investors are waiting for clear indications. If US inflation for July comes in below expectations, the market reaction is likely to be positive and provide some relief.
What is better from a stock investor’s perspective: sharp rate hikes in a short period of time, like the US Federal Reserve is doing? Or is a “soft landing” of the economy more likely – as the ECB is doing – to be achieved with moderate increases spread over a longer period of time?
There is no general answer to that. The Americans are trying to accomplish their “soft landing” themselves. the euro zone is in turn more severely affected by the current crisis than the USA due to its high energy dependency. In addition, the ECB must also take into account the high level of debt, particularly in southern European countries, which is why the ECB is acting very slowly.
The US Federal Reserve is more aggressive than the ECB. Is that why you weight European stocks higher in the portfolio?
We always come from the reviews site. In the euro area, there are currently very attractively priced companies that meet our longer-term investment criteria. You don’t buy a region, you invest in individual companies. The weak euro makes American investments more expensive and also conceals the equally weak performance of the American stock market.
Measure corporate debt due to the now more restrictive monetary policy more important than in periods of stable interest rates?
We generally examine the balance sheets of the companies that are suitable for investment very intensively. The portfolio only contains companies that can easily meet their debt obligations even if interest rates are higher.
The IMF has revised its economic forecasts downwards. So are you increasing your stock picking focus on companies that have strong pricing power and can grow earnings despite the current economic headwinds?
Our focus is fundamentally on structurally healthy companies. Atea is a good example of this. The Norwegian IT service provider earns its money by selling IT infrastructure products and installing and maintaining networks. Despite high inflation rates, customers will not reduce their IT investments or only slightly. The clear market leader Atea thus achieves continuously high cash flows and is growing. The company is also cheaply valued.
Loys Global and Loys Aktien Global invest internationally. How big is the fund’s investment universe and how do you filter attractive stocks from it?
Around 2,500 company valuations come into question for us. We determine purchase candidates using our own database. We look for stocks that have a free cash flow yield of at least 4% and an undervaluation of around 30%. We then carefully analyze the companies that are then available for selection, and we then usually talk to the management to get a clear picture.
As a value investor, you look for stocks that are trading below their fair value. Have you taken advantage of buying opportunities in the past few months?
Yes, in downturn phases it is important to sow the seeds for the next upswing. We have therefore used cash positions or disposed of less attractive stocks in order to be able to buy into the weakness. Among others, we have added US oil supplier Schlumberger to the portfolio. Even if the prices of some stocks continued to fall after our entry, we are convinced that the undervaluations will disappear and the prices of our new acquisitions will rise above the entry price. Timing courses does not work, which is why you should slowly proceed anti-cyclically.
The Loys Global has lost around 15 percent since the beginning of the year. Are you confident that the loss will be smaller by the end of the year?
That is hard to say. But anyone who is active in the stock market must also have a certain degree of confidence and be willing to take risks. Yes, I think the fund can catch up, the bear market can end and we can still see a year end rally as well.
SShould I sell my shares or, even better, the whole portfolio?” Some investors may ask themselves in view of the ongoing market turmoil ask these days. After all, nerves have taken a hit after the month-long slide on the capital markets as a result of COVID, inflation, interest rate hikes and geopolitical risks. And for the time being, no improvement seems to be in sight. V-shaped coursefetches, as has often been observed in the past in the course of central bank interventions, are not happening. The money guards’ hands are tied.
“Why only now?”, one would like to reply to these investors. Why not months ago when today’s situation cast its shadow? And above all: “What then?” What do you do with the liquid assets, the higher inflation is exposed? Under what circumstances would you reinvest?
Anyone in need of some emotional support may remember the economist Benjamin Graham. he created”Mr Market“, that imaginary investor who, driven by panic, euphoria and apathy, lets himself be tempted to make emotional investment decisions based on his recent experiences. Fundamental or technical analysis, i.e. facts, do not interest him. Graham pointed out how important it is in the stock market that long-term image keep in mind and act rationally. It is not uncommon for it to be cheap to buy shares when Mr. Market, who represents the sum of market participants, is pessimistic. And Mr. Market is pretty depressed right now. Which should be understood as a reason to keep your own investments, if they were put together with care, and even to strengthen them via a savings plan. The next change of mood from Mr. Market is certain!
Loy’s Global: The fund has a bad fund rating. But this is due to the value strategy, which has not been very successful for a long time. The investment style now promises potential returns.
ISIN: LU0107944042
ISIN: LU1487829548
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Image sources: Loys, oatawa / Shutterstock.com
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