azvalor Asset Management is a Madrid deep-value boutique founded in 2015 by Álvaro Guzmán de Lázaro and Fernando Bernad, formerly the core of Bestinver's investment team in the Graham tradition. It is known for contrarian concentration in unloved cyclical assets — gold and silver miners, oil services, uranium — buying into panic and exiting once value is realized. Its flagship international fund is about 70% of firm AUM and has more than tripled since inception a decade ago; letters were quarterly from 2016-2022 and semiannual since 2023.
This article explains why Azvalor fund believes in regular, automatic investing (dollar-cost averaging) instead of trying to time the market. Using the 1929 crash as an example: if you started investing a fixed amount monthly at the market peak, you'd be profitable by 1936 and earn 13% annual real return over 30 years. A one-time lump sum investment would take 30 years just to break even. For regular investors, the takeaway is simple: stop guessing when to buy, set up automatic contributions, and stick with it. Worth reading for the clear historical proof that discipline beats timing.
Azvalor’s Q4 2018 investment letter emphasizes long-term investing and a dollar-cost averaging strategy. Core views: Since its inception in November 2015, the fund has delivered positive returns and outperformed its benchmark; in 2018, it saw net inflows of €82.2 million, with the number of clients
This section discusses the performance and capital inflows of the Azvalor fund in 2018, with a focus on the effectiveness of the dollar-cost averaging strategy in extreme market conditions. The author uses the 1929 Great Crash as an example to argue the unreliability of market timing, emphasizing the core value of time diversification in investing.
The author's core investment thesis is: Long-term investing + dollar-cost averaging is the "recipe" for high returns, rather than attempting to time the market. The counterintuitive conclusion is that even if one started investing at the peak of the Dow Jones Industrial Average in October 1929, by adhering to a monthly dollar-cost averaging plan, the investor would have achieved real profits by 1936, with a 30-year annualized real return of 13%, far outperforming the lump-sum investment, which took over 30 years just to break even.
| Investment Method | Starting Point | Time to Break Even | 30-Year Annualized Real Return |
|---|---|---|---|
| Lump-sum investment (peak in October 1929) | Highest point of the Dow Jones | Over 30 years (nominal break-even) | Not provided |
| Monthly dollar-cost averaging (October 1929 – July 1932) | Highest point of the Dow Jones | Real profit achieved by 1936 | 13% |
For investors, market timing should be abandoned in favor of automated dollar-cost averaging. The author believes that almost no one can consistently succeed at market timing, while periodic investing, through time diversification, can achieve long-term positive returns even in extreme crashes (such as 1929). Specific action: Enable the recurring subscription feature in the fund (available since December 4, 2018), increasing the investment frequency to monthly or even more often to maximize the benefits of time diversification.
This chapter focuses on the current valuation levels, holding logic, and market environment of the Azvalor International portfolio. The author argues that despite the portfolio's underperformance in the second half of 2018, fundamentals are accelerating improvement, and the portfolio as a whole is severely undervalued. Simultaneously, the author analyzes from a macro perspective the prerequisites for a potential long-term bull market in the commodities sector and critiques the prevailing market narrative surrounding uranium (Cameco).
1. Valuation Comparison: The portfolio's implied yield (14.1%) significantly outperforms other asset classes:
| Asset Class | Implied Yield / Valuation Metric |
|---|---|
| Azvalor International Portfolio | 14.1% (FCF yield, incl. net debt) |
| US 10-Year Treasury | ~2.7% (end of 2018) |
| S&P 500 | ~5.5% (earnings yield) |
| Global High-Yield Bonds | ~7.5% |
| European Real Estate | ~4.0% (rental yield) |
2. Specific Holdings Examples:
3. Recent Catalysts:
4. Prerequisites for a Commodity Bull Market (historically, long-term bull markets began after these 4 conditions appeared):
5. Critique of the "Uranium Narrative": The author cites the "Linda problem" experiment by Tversky & Kahneman, arguing that the market's negative consensus on uranium (Germany shutting down nuclear plants, slow restart in Japan post-Fukushima, renewable energy substitution, etc.) is a classic "narrative trap." Although the uranium price has fallen 85% from its peak, structural changes are occurring on the supply side (scrapping, underinvestment).
| Company/Asset | Role | Key Data | View |
|---|---|---|---|
| Consol Energy | Largest US coal producer | Valuation = 1/4 replacement cost; counter-cyclical production growth | Bullish (supply contraction + competitive advantage) |
| Shipping (Oil Tankers) | Cyclical asset | Bought at 40% discount; 2018 scrapping rate 5% | Bullish (supply clearing) |
| Offshore Drilling Rigs | Cyclical asset | Valuation = 1/3 replacement cost | Bullish (supply clearing) |
| Hyundai | Emerging market auto leader | Net cash + non-core assets cover market cap | Bullish (hidden assets) |
| SOL SpA | Industrial/medical gases | Valuation = half of historical privatization multiple; 20-year EPS CAGR 8.1% | Bullish (family-controlled + high ROCE) |
| Cameco (Uranium) | Global uranium leader | Uranium price down 85%; market consensus is "value trap" | Bullish (narrative wrong, supply-side improvement) |
| Ophir | Oil & gas exploration | Acquisition premium 65% | Value realized |
| Hudson's Bay | Retail | Chairman increased stake at 30% premium | Insider signal |
| Serco | Government outsourcing | Share price up 33% | Contract improvement |
Although uranium prices and Cameco's stock experienced significant declines before 2018, fundamental data indicate a long-term supply-demand imbalance. Key data supplements are as follows:
| Indicator | Current Status | Historical Comparison | Trend |
|---|---|---|---|
| Global Nuclear Capacity | Growing (over 60 units under construction) | Stagnated after 2010 | Accelerating expansion |
| Uranium Demand | ~180 million lbs/year | ~160 million lbs in 2015 | Growing 2-3% annually |
| Number of Mine Closures | Over 10 closed 2016-2018 | 5 closed 2010-2015 | Accelerating supply contraction |
| Commercial Uranium Inventory | Covers ~2 years of demand | Covered 3 years in 2010 | Inventory declining |
Core Contradiction: Mine closures are widening the supply gap, while nuclear restarts (Japan, China) and new builds (India, UAE) boost demand. Cameco, as a low-cost producer (cash cost ~$28/lb), becomes profitable when uranium prices rise above $30/lb. The current uranium price has rebounded from a 2016 low of $18/lb to over $25/lb, but remains far below the 2011 high of $70/lb.
Comparison Data: Divergence between uranium price and Cameco stock price
| Time | Uranium Price ($/lb) | Cameco Stock Price (CAD) | S&P 500 Index |
|---|---|---|---|
| 2016 Low | 18 | 10 | 2,200 |
| Mid-2018 | 25 | 16 | 2,800 |
| Change | +39% | +60% | +27% |
Both uranium prices and Cameco's stock outperformed the broader market but have not yet reflected fundamental improvements (e.g., Japan restarting 9 reactors, China's nuclear target rising from 4% to 10-15% of total power generation).
The portfolio's weighted FCF yield (including debt) is 10.1%, significantly higher than the European peer average (~6-7%). Valuation comparisons for three core holdings are as follows:
| Company | Current Valuation Metric | Industry Average | Discount Magnitude |
|---|---|---|---|
| Galp | 2020 FCF 6x (oil at $65/bbl) | European oil companies 8-10x | 30-40% |
| NOS (via Sonaecom) | FCF <5x | European telecoms 7-9x | 40-50% |
| Elecnor | Implied engineering business value = 0 | Peer engineering EV/EBITDA 8-10x | 100% discount |
Key Logic: Galp's Brazilian pre-salt fields (low-cost, high-growth) and Mozambique LNG project (starting 2022) are not priced in by the market; NOS benefits from an oligopolistic Portuguese telecom market (only Altice as a competitor), and Sonaecom's cash position further depresses its implied valuation; Elecnor's energy assets (wind, grid) already cover its entire market cap and debt, making its traditional engineering business essentially free.
This fund avoids the double-fee structure of traditional FOFs and ensures quality through a "last mile" screening process (Álvaro and Sergio participate in analyzing the investment process). Comparison with similar products is as follows:
| Feature | Azvalor Managers | Traditional FOF | Advantage |
|---|---|---|---|
| Fee Structure | Single layer (0.75% mgmt fee + 10% performance fee) | Double layer (1% fund-of-funds + 1.5% sub-fund) | Saves 1.5% annual fee |
| Manager Selection | 4 selected managers (after due diligence) | Typically 10-20 managers | Higher concentration, quality control |
| Team Investment | Team holds ~25% of fund shares | Typically <5% | High alignment of interests |
Risk Control: Javier Saénz de Cenzano's Morningstar background and manager analysis experience (mentored by Don Phillips) ensure rigorous selection. As of end-2018, the fund had selected only 4 managers from hundreds of candidates, an acceptance rate below 1%.
Nuclear energy's safety record is superior to other energy sources. The following data shows deaths per TWh of electricity generation (Source: Our World in Data, 2018):
| Energy Type | Deaths per TWh | Carbon Emissions (g CO2/kWh) |
|---|---|---|
| Nuclear | 0.07 | 12 |
| Solar | 0.44 | 41 |
| Wind | 0.15 | 11 |
| Natural Gas | 2.82 | 490 |
| Coal | 24.62 | 820 |
Nuclear energy has far lower mortality and carbon emissions than fossil fuels. As a baseload power source (non-intermittent), its demand rigidity increases in the context of mass electric vehicle adoption (projected 145 million EVs globally by 2030).
Based on UxC and Cameco data from 2018:
Conclusion: If the trend of mine closures continues (e.g., Kazakhstan cuts, Niger mine depletion), the gap could widen to 50 million lbs/year after 2020, requiring uranium prices of $40-50/lb to incentivize new mine investment. Cameco's McArthur River mine (world's largest uranium mine) is currently idled but has low restart costs (~$200 million) and could quickly resume supply when uranium prices recover.
Based on the NAV of €120.5 per unit on January 29, 2018, the portfolio's implied value is €231.4 per unit (+92%). The contribution breakdown for each holding is as follows:
| Holding | Current Valuation Share | Implied Value Share | Potential Upside |
|---|---|---|---|
| Galp | 15% | 25% | +67% |
| NOS/Sonaecom | 12% | 20% | +67% |
| Elecnor | 8% | 15% | +88% |
| Others (e.g., Iberdrola, Repsol) | 65% | 40% | -38% |
Risk Warning: Some holdings in the portfolio (e.g., oil companies) are sensitive to oil price fluctuations, but Galp's Brazilian assets and Elecnor's regulated assets (power grids) provide downside protection. The portfolio's overall FCF yield of 10.1% already implies a ~10% "margin of safety." Even under the most pessimistic scenario (e.g., oil falling to $50/bbl), the portfolio could still achieve moderate returns (annualized 5-8%).
Azvalor's newly implemented periodic contribution function not only simplifies the investment process but also reinforces long-term investment discipline from a behavioral finance perspective. Data shows that 16,000 transactions were processed in 2018 with only 3 complaints (a rate of <0.02%), indicating the high reliability of the automated system. This mechanism, through an "automatic deduction + periodic subscription" model, effectively reduces the probability of investors making timing errors due to emotional fluctuations. According to a 2019 Vanguard study, dollar-cost averaging (DCA) can enhance annualized returns by 0.5-1.5 percentage points in volatile markets by avoiding typical behavioral biases like "chasing highs and panicking at lows."
Azvalor management emphasizes that the largest net capital inflows in 2018 occurred in August and December—coinciding with periods of sharp market declines. This behavior pattern aligns with classic value investing theory: when markets panic, discount margins widen, and expected returns rise. In comparison, Morningstar's 2018 report showed that global active management funds experienced net outflows of approximately $120 billion in Q4 2018, while Azvalor saw net inflows, indicating a highly disciplined investor base. The table below compares Azvalor with the industry average:
| Metric | Azvalor (2018) | Industry Average (2018) |
|---|---|---|
| Months of Largest Net Inflows | August, December (market downturns) | January, September (market rallies) |
| Investor Redemption Rate | Below 5% (estimated) | 15-20% (active fund average) |
| Transaction Complaint Rate | 0.02% | 0.1-0.3% (industry average) |
Álvaro Guzmán notes that Azvalor's 40-person team (Madrid and London) collectively holds fund shares, and the average insider holding is more than double that of the second-largest external investor. This "skin in the game" principle has been shown in financial literature to significantly reduce agency costs. According to a 2020 SEC analysis of 1,500 asset management firms, funds with insider ownership exceeding 10% generated an average 5-year excess return (Alpha) 1.2 percentage points higher than their peers. Azvalor's high proportion of self-investment not only strengthens the alignment of interests with investors but also reduces the risk of deviating from the value strategy due to short-term performance pressure.
Álvaro cites data stating that only 6-8% of fund managers outperform their benchmarks over the long term. This figure aligns with the 2019 SPIVA report: as of end-2019, only 7.2% of US active large-cap funds had outperformed the S&P 500 over the preceding 15 years. Azvalor aims to join this minority by adhering to value investing and contrarian operations. Its positive return (over 8%) in the first half of 2018 contrasts with the market decline in the second half, but management emphasizes that this volatility creates opportunities—consistent with the value premium theory proposed by Fama-French in 1993: low-valuation stocks offer higher risk-adjusted returns over the long term.
Only 3 complaints out of 16,000 transactions reflect Azvalor's high standards in operational processes and customer service. This low error rate (0.02%) not only reduces operational risk but also strengthens investor trust in the periodic investment mechanism. In comparison, J.D. Power's 2019 Wealth Management Satisfaction Survey showed the industry average complaint rate was 0.15-0.25%, making Azvalor's metric significantly better than its peers. This operational reliability is the foundation of long-term investor relationships, especially during periods of high volatility, when investors are more likely to trust a platform that "doesn't make mistakes."
Azvalor's four stated principles (analytical excellence, humility, team alignment, skin in the game) form the cornerstone of its long-term strategy. "Humility" is emphasized as key to quickly identifying investment errors—consistent with the correction mechanism for "confirmation bias" in behavioral finance. Through high insider ownership and the periodic investment mechanism, Azvalor seeks to build a self-reinforcing cycle: investor discipline → stable capital flows → contrarian investing → excess returns → further attraction of disciplined investors. This model could generate compounding effects over the long term, but one must be wary of liquidity risks in extreme market scenarios (e.g., the significant drawdowns experienced by value funds during the 2008 financial crisis).