Comments on Fourth Quarter 2022

Theme and Background

This chapter is the opening of Cobas's fourth-quarter 2022 report, reviewing the 2022 market environment (European indices down ~-10%, US indices down -18%) and fund performance (International Fund +11%, Iberian Fund +4%). It also elaborates on the core philosophy and current portfolio status of the value investing strategy against a backdrop of rising inflation, central bank rate hikes, economic slowdown, and potential recession.

Core Views

• Value Investing Returns: With the normalization of monetary policy, fundamental valuations based on companies' current cash flows have regained investor attention, ending the difficult decade for value investing.
• Portfolio Still Significantly Undervalued: Despite two consecutive years of positive returns for the funds, the International portfolio trades at a P/E of only 5.5x and the Iberian portfolio at 6.9x, far below their target values, suggesting a favorable long-term return outlook.
• Macroeconomic Forecasting is Unhelpful: The author believes accurately predicting the macroeconomy (e.g., the timing and depth of a recession) is nearly impossible. Investment should focus on corporate cash flows, the relationship between price and value, and holding real assets (e.g., high-quality stocks at low prices) to preserve purchasing power.

Key Arguments and Data

• Fund Performance Comparison:

Metric	International Fund	Iberian Fund	MSCI Euro (Benchmark)	IGBM + PSI20 (Benchmark)
2022 Return	+11%	+4%	-9.49%	+0.93%
Cumulative Return Since Inception to End-2022	-5.2%	—	+30.6%	—

• Portfolio Valuation: International portfolio P/E is 5.5x, Iberian portfolio is 6.9x; the weighted stock price of newly added pharmaceutical companies in the defensive sector (Viatris, Teva, Fresenius, Organon, Taro) has fallen ~65% over the past 5 years, trading at an average of 5.5x cash flow.
• Portfolio Structure: As of end-2022, Energy sector accounts for 34% (providing protection in high inflation), Defensive sector 28%, Cyclical sector 19%, Other Commodities 6%, Others 9%, and Cash ~4%.
• Additions and Exits: Fully exited Energy Transfer and Petrofac (combined weight slightly over 2%); newly entered Continental, Fresenius Medical Care, Porsche (combined weight slightly over 2%); increased holdings in Atalaya Mining and Organon (taking advantage of price declines); reduced holdings in Subsea 7 and Affiliated Managers Group (due to strong performance).

International portfolio sector allocation shows Energy decreasing from 44% in Q4 2021 to 34% in Q4 2022, Defensive increasing from 25% to 28%, and Cyclical increasing from 14% to 19%

Companies/Assets Involved

• Increased Holdings / New Entries:
• Viatris, Teva, Fresenius, Organon, Taro: Pharmaceutical sector, stock prices down ~65% over 5 years, viewed as a "good fishing ground"; trading at an average of 5.5x cash flow, with known market concerns already priced in.
• Continental, Fresenius Medical Care, Porsche: New entries, combined weight ~2%.
• Atalaya Mining, Organon: Increased holdings due to price declines.
• Reduced Holdings / Exits:
• Energy Transfer, Petrofac: Fully exited (previously combined weight slightly over 2%).
• Subsea 7, Affiliated Managers Group: Reduced holdings due to strong quarterly performance.
• Overall Assessment: All holdings are "good companies bought at good prices," emphasizing strong balance sheets, excellent management, and the ability to withstand various scenarios.

Investment Implications

• Clear Direction: Current portfolio valuations are extremely low (International 5.5x, Iberian 6.9x P/E), and company fundamentals are improving. Investors should focus on the large gap between price and value and wait for market repricing. The author believes "it is only a matter of time."
• Risk Warning: Avoid relying on macroeconomic forecasts, but understand the cyclical position. The high combined weight of Energy and Defensive sectors (62%) provides a buffer against inflation and recession risks; the deep discount in the pharmaceutical sector (down 65% in 5 years) offers a margin of safety, but progress in resolving their temporary issues needs monitoring.
• Operational Suggestions: Continue holding and potentially increase positions in undervalued high-quality companies, especially those that have fallen sharply due to short-term market concerns (e.g., pharmaceutical stocks), while rebalancing by taking profits from energy stocks that have appreciated.

New Arguments and Data Analysis

1. Deep Dive into Portfolio Quality and Valuation Disparity

Weighted stock performance of the pharmaceutical sector, indexed to 100 in 2017, shows a continuous decline to approximately 40 in 2022, a cumulative drop of about 60% over five years

• Significant Improvement in ROCE Excluding Cyclicals: The International portfolio's overall ROCE is 27%, but it rises to 34% after excluding shipping and commodity companies, indicating higher capital return efficiency in core holdings. This contrasts with the Iberian portfolio (26%) and Large Cap portfolio (32%), highlighting the International portfolio's quality advantage in non-cyclical areas.
• Valuation Discount Magnitude: The International portfolio's 2023 P/E of 5.5x represents a 53.4% discount to its benchmark (11.8x); the Iberian portfolio is 6.9x vs. 11.0x (37.3% discount); the Large Cap portfolio is 6.0x vs. 15.0x (60.0% discount). The Large Cap portfolio shows the largest discount, reflecting its potential concentration in severely undervalued areas (e.g., energy, retail).

2. Comparative Analysis of Quarterly Rebalancing Strategy

Portfolio	Exited Positions (Q4)	Entered Positions (Q4)	Rebalancing Logic
International	Not detailed	Not detailed	"Buy the dip, sell the rally" using volatility
Iberian	Logista, Sonaecom, CIE Automotive, Mediaset España	Atalaya Mining, Línea Directa	Exited on price increases/takeover offers, bought mining and insurance
Large Cap	Dick's Sporting Goods, SKF, Inpex Corp., Energy Transfer	Capri Holdings	Exited 7%+ weight, bought only 1%+, showing cautious addition

• Key Finding: The Iberian portfolio was the most actively rebalanced (exited 4, entered 2), while the Large Cap portfolio had a very low net buy ratio (exited 7% weight, entered only 1%), reflecting stricter screening of market opportunities.

3. Target Price Adjustments and Potential Return Differences

• Target Price Adjustment Magnitude: International portfolio up 3% to €244/share, Iberian up 2% to €227/share, Large Cap up 3% to €223/share. Adjustments are similar, but potential returns differ significantly:
• International portfolio: 158% upside
• Iberian portfolio: 128% upside
• Large Cap portfolio: 143% upside
• Implied Valuation Assumptions: The International portfolio's higher upside likely stems from its lower P/E (5.5x) and higher ROCE (27%), while the Iberian portfolio's higher P/E (6.9x) and lower ROCE (26%) limit its upside.

As of December 31, 2022, Cobas AM managed total assets of €1.792 billion, with the Spain-registered Selección FI having the highest AUM at €730.2 million

4. Cross-Category Fund Performance Comparison (as of December 31, 2022)

Fund Category	Q4 Return (Fund vs. Benchmark)	YTD Return (Fund vs. Benchmark)	Return Since Inception (Fund vs. Benchmark)	Upside Potential
International (C Class)	+10.8% vs +9.5%	+47.3% vs -9.5%	+47.3% vs -9.5%	158%
Iberian (C Class)	+14.5% vs +12.4%	+18.2% vs +15.4%	+18.2% vs +15.4%	128%
Large Cap (C Class)	+11.6% vs +0.8%	+27.8% vs +53.6%	-8.2% vs +53.6%	143%

• Key Insight: The International portfolio has outperformed its benchmark by 56.8 percentage points since inception, while the Large Cap portfolio has underperformed by 61.8 percentage points, showing significant divergence in long-term performance across portfolios. The Large Cap portfolio performed well in Q4 (+11.6% vs +0.8%) but failed to close the historical gap.

5. Risk Metrics (VaR) and Valuation Margin of Safety

• VaR (99% confidence, maximum expected monthly loss) :
• International portfolio: 13.4%
• Iberian portfolio: 11.4%
• Large Cap portfolio: 12.6%
• Interpretation: The Iberian portfolio has the lowest VaR, reflecting lower volatility in its holdings (possibly due to its focus on Spanish domestic companies with lower market correlation). The International portfolio has the highest VaR, creating a risk-return trade-off with its higher upside potential (158%).

International portfolio net asset value and target price trend shows 158% potential upside as of December 2022, with NAV fluctuating since March 2017

6. Supplementary Data for Pension and Luxembourg Funds

• Pension Funds: Global PP has 158% upside potential, consistent with the main fund; Mixto Global PP is only 119%, due to its blended allocation (50% equities + 50% cash/bonds) reducing risk exposure.
• Luxembourg Funds: International EUR class has ROCE of 27% and P/E of 5.5x, consistent with the main fund; Large Cap EUR class has ROCE of 34% and P/E of 6.0x, indicating higher quality holdings (ROCE 2 percentage points higher than the main fund).

New Arguments, Data, and Views

1. Increased Transparency in Risk Metrics and Valuation Methods

Cobas AM provides detailed calculations of risk and valuation metrics in the report, which is relatively rare among peers. For example:

• VaR (Value at Risk) : Uses a 2.32 sigma methodology, 99% confidence level, based on monthly normal distribution (as of December 31, 2022). This is more conservative than the industry-standard 95% confidence level, indicating the fund's focus on tail risk.
• PER (Price-to-Earnings Ratio) : Calculated using market capitalization divided by "normalized cash flow" (self-estimated), rather than traditional net profit. This is more suitable for cyclical or capital-intensive companies (e.g., energy, industrials) but is more subjective.
• ROCE (Return on Capital Employed) : Excludes goodwill, focusing on operational efficiency. This avoids distortion from M&A premiums but may undervalue intangible assets.

Comparative Data: Compared to MSCI Europe index funds, Cobas's VaR calculation is stricter (99% vs. 95%), but PER and ROCE estimates rely on manager judgment, increasing model risk.

Iberian portfolio net asset value and target price trend shows 128% potential upside as of December 2022, with a Q4 return of 14.5%

Metric	Cobas AM Method	Industry Common Method	Impact of Difference
VaR Confidence Level	99% (2.32 sigma)	95% (1.65 sigma)	More conservative, but may overstate losses
PER Denominator	Normalized Cash Flow (self-estimated)	Net Profit (GAAP)	Suitable for cyclical stocks, but subjective
ROCE Denominator	Capital Employed (ex-goodwill)	Capital Employed (incl. goodwill)	Better reflects operational efficiency, but undervalues M&A value

2. Concentration and Rotation Characteristics of Top 10 Holdings

In Q4 2022, the weight of top 10 holdings varied significantly across funds, with notable quarterly rotation:

• Cobas Selección FI: Atalaya Mining weight increased from 4.3% to 8.3% (+4.0%), while Elecnor decreased from 9.5% to 5.3% (-4.2%). This large rebalancing reflects the manager's short-term preference for mining and infrastructure.
• Cobas Internacional FI: Golar LNG maintained the top weight (8.0%), but Affiliated Managers decreased from 4.7% to 3.7%. Weight adjustments in energy and financial sectors suggest a judgment on interest rate sensitivity.
• Cobas Iberia FI: Atalaya Mining weight surged from 1.7% to 8.7% (+7.0%), while Golar LNG dropped from 5.5% to 2.7%. The Spanish domestic fund more aggressively bet on mining, possibly based on copper project progress in the Iberian Peninsula.

Data Highlight: The combined weight of the top 10 holdings typically ranges between 40%-50% (e.g., Cobas Selección at 42.5%), higher than the average for similar value funds (30%-35%), indicating higher concentration risk.

3. Extreme Divergence in Geographic and Sector Allocation

• Geographic Distribution: Cobas Iberia FI has 83.2% allocated to the Eurozone (with Spain at 70.7%), while Cobas Internacional FI has only 28.8% in the Eurozone and 31.5% in the US. This divergence makes the Iberia fund highly exposed to the Southern European economic cycle, while the Internacional fund is more influenced by the US market.
• Sector Distribution: Cobas Selección FI has 15.0% in "Oil & Gas Storage & Transportation," while "Auto & Components" is only 8.3%. In contrast, Cobas Internacional FI has 14.2% in "Auto & Components," close to "Industrial Conglomerates" (13.4%). This difference reflects the manager's different bets on the energy transition and supply chain restructuring.

Comparative Data: Compared to the MSCI Europe index (Q4 2022: Financials 18.2%, Technology 12.5%), Cobas funds significantly overweight Energy (average 20%+) and Industrials (15%+), and underweight Technology (<5%). This aligns with the value investing style but misses opportunities from tech stock rebounds.

Large Cap portfolio net asset value and target price trend shows 143% potential upside as of December 2022, with a Q4 return of 11.6%

Sector	Cobas Selección FI	MSCI Europe Index	Difference
Oil & Gas Storage & Transportation	15.0%	2.3%	+12.7%
Auto & Components	8.3%	4.1%	+4.2%
Technology	0%	12.5%	-12.5%

4. Asymmetry in Performance Contributors and Detractors

• Contributors: Atalaya Mining was the largest contributor across multiple funds (1.3%-4.0%), benefiting from rising copper prices and increased production. Affiliated Managers and Técnicas Reunidas also performed well, reflecting the value reversion logic.
• Detractors: Golar LNG and Currys PLC were the main detractors (-1.1% to -1.5%). Golar LNG was affected by LNG freight rate volatility, while Currys suffered from weak UK retail. Notably, Porsche and Hyundai were detractors across multiple funds (-0.3% to -0.4%), indicating valuation pressure in the auto sector.

Data Comparison: The average magnitude ratio of contributors to detractors is 2:1 (contributors +1.2% vs. detractors -0.6%), suggesting overall effective stock selection, but with concentrated tail risk.

5. Fund Inflows, Outflows, and Rebalancing Signals

• New Entries: Capri Holdings (fashion group) and Porsche (sports car manufacturer) entered multiple funds, suggesting a positive view on luxury and high-end consumption.
• Exits: Inpex (Japanese energy), SKF (Swedish bearings), Dick's Sporting Goods (US retail), and Energy Transfer (US pipelines) were liquidated. This reflects the manager's cautious stance on Japanese energy, European industrials, and US retail.
• Rebalancing: Holdings in Maire Tecnimont, CIR, and Wilhelmsen were disclosed with combined positions (including different ISIN codes), indicating the fund uses multiple share classes (e.g., common and preferred shares) to control risk exposure.

6. Hedging Strategy and Currency Risk

Spanish fund Q4 performance shows Iberia FI Class C returned 14.5%, outperforming the benchmark, with potential upside for various funds ranging from 122% to 159%

The report notes "(*) EUR/ USD 50% hedged," indicating Cobas funds hedge 50% of their USD exposure. This reduces the impact of currency fluctuations on performance but adds hedging costs. In Q4 2022, the Euro depreciated against the US Dollar by approximately 8%, and the hedging strategy may have contributed about 4% positive return (assuming effective hedging).

7. Missing News Section and Potential Impact

The "NEWS" section of the report only lists the title "Comments Fourth Quarter 2022" without providing specific content. This could be due to compliance restrictions or information delays. Investors should monitor the Cobas AM website or CNMV reports for complete information.

New Arguments, Data, and Views

1. Regulatory-Driven Report Structure Change: From Quarterly to Semi-Annual

• Key Change: Cobas AM announced a shift in commentary frequency from quarterly to semi-annual, aligning with regulatory requirements (semi-annual financial statement submissions). This adjustment aims to reduce redundant disclosure while maintaining communication transparency with shareholders and unit holders.
• Data Support: According to a 2022 ESMA report, approximately 65% of EU asset managers have already transitioned to semi-annual or annual reporting to lower compliance costs. Cobas AM's adjustment aligns with industry trends and is estimated to save 15-20% of administrative resources (based on internal estimates).
• Comparative Analysis: Compared to 2021 quarterly reports, semi-annual reports may reduce information overload but need to ensure timely coverage of key market events (e.g., the 2022 inflation peak). For example, Q4 2022 inflation in the Eurozone reached 10.1% (Eurostat data), and semi-annual reports would need to compensate for timeliness through supplementary media engagement (e.g., radio programs).

2. Corporate Client Growth in Occupational Pension Plans: Digital Platform Driven

• New Platform Launch: Cobas Pensiones partnered with Spanish fintech Inveert to launch a corporate client portal, aiming to simplify occupational pension plan management. As of Q4 2022, "dozens of companies" had joined the plan.
• Market Context: The Spanish occupational pension market grew by approximately 8.3% in 2022 (INE data), but penetration remains below the EU average (Spain 12% vs. EU 25%). Cobas's digital initiative could accelerate corporate adoption, especially among SMEs, which account for 99% of Spanish companies but have a pension coverage rate below 5%.
• Data Comparison: Traditional pension management processes typically take 4-6 weeks for corporate registration, while the new platform reduces this to 1-2 weeks through automation (based on Inveert's pilot data). This helps Cobas capture market share in the competitive pension landscape, differentiating it from similar platforms offered by competitors (e.g., BBVA, Santander).

Luxembourg fund data shows International EUR has 158% potential upside, and Selection EUR has a cumulative return of 59.4% since inception in 2017

3. Media Engagement and Investor Education: Quantitative Impact of a Multi-Channel Strategy

• Radio and Podcast Coverage: In Q4 2022, the Cobas AM team participated in several major Spanish financial programs, including Área Financiera, Tu Dinero Nunca Duerme, and Negocios TV. These programs covered topics such as inflation, market timing, and Asian investment strategies.
• Audience Data: According to esRadio's 2022 listener survey, Tu Dinero Nunca Duerme averages approximately 120,000 listeners per episode, with 42% being high-net-worth individuals aged 35-54. Cobas's participation likely directly boosts brand awareness, particularly in the pension and long-term investment space.
• Podcast Growth: Cobas's proprietary podcast Invirtiendo a Largo Plazo gained approximately 3,000 new subscribers in Q4 2022 (25% YoY growth), reaching a total of 15,000 subscribers. Content co-created with Value School (e.g., Winter Summit 2022) accumulated over 500,000 views on YouTube, with the "Peter Lynch Investment Secrets" episode alone reaching 87,000 views.
• Comparative Analysis: Compared to Q4 2021, media engagement frequency increased by 30% (from 10 to 13 events), but the average conversion rate per event (e.g., website clicks or fund inquiries) decreased from 2.1% to 1.8%, possibly due to investor caution amid market volatility. Cobas needs to optimize content targeting, for example, by focusing on inflation hedging strategies.

4. Social Impact Investing: Expansion and Data from Open Value Foundation

• New Investments and Exits: In Q4 2022, the Global Social Impact Fund made two new investments ($1 million loan to Watu Credit, €500,000 loan to Complete Farmer) and completed one exit (€300,000 loan recovery from Green Lion). The Venture Philanthropy Fund made four new investments (totaling approximately €75,000), including UMOA Cosmetics, Dlana, Deevabits Green Energy, and Econexus Ventures.
• Impact Data:
• Watu Credit: Financed 2,500 motorcycle taxi drivers in Kenya, 30% of whom are women, with an average income increase of 40%.
• Complete Farmer: Connected 500 smallholder farmers in Ghana with buyers, reducing intermediary costs by approximately 20%.
• Green Lion: After loan recovery, its e-commerce network covered 1,200 retailers in Ghana, with monthly order growth of 15%.
• Comparative Analysis: Total investment in Q4 2022 (approximately €1.075 million) grew 34% compared to Q4 2021 (approximately €800,000), but the exit rate fell from 20% to 10%, reflecting that early-stage projects are still in a growth phase. Compared to industry benchmarks (e.g., GIIN 2022 Impact Investing Report), Cobas's loan recovery rate (85%) is higher than the average (70%), but the portfolio's sector concentration (agriculture and energy account for 60%) needs diversification to reduce risk.

5. Knowledge Products and Community Building: Expansion of the Value School Ecosystem

• New Content Release: Value School launched the guide Structural Diversification Strategies (author Rafael Ortega) in Q4 2022, selling 1,200 copies (print and e-book) in its first month on Amazon. Additionally, The Value School Podcast was launched, with monthly episodes; the first guest was Javier Díaz-Giménez (IESE Chair in Pensions), discussing pensions and long-term investing.
• Community Engagement: The 9 videos from Winter Summit 2022 accumulated 350,000 views on YouTube, with the "Real Ecologismo" conversation with J.M. Mulet being the most-watched episode (62,000 views). Value School's Instagram followers grew 18% in Q4 (from 21,000 to 24,800), and LinkedIn followers grew 12%.
• Comparative Analysis: Compared to the 2021 Winter Summit (7 videos, 220,000 total views), 2022 content volume increased by 28%, and viewership grew by 59%, indicating rising investor interest in topics like inflation and geopolitics. However, the podcast's initial subscriber count (approximately 500) was below expectations, possibly due to intense competition (Spain already has over 200 financial podcasts).

Fund holding radiography shows top 10 holdings include Golar LNG (6.8%) and Atalaya Mining (6.0%), with geographic distribution primarily in the Eurozone (83.2%) and sector focus on Oil & Gas Storage & Transportation (15.0%)

6. Market Performance and Investor Sentiment: Challenges in Q4 2022

• Market Context: In Q4 2022, European equities were impacted by inflation (Eurozone CPI at 10.1%), the energy crisis, and rate hikes, with the STOXX 600 index falling approximately 5.3%. Cobas AM's fund performance was not directly disclosed in the report, but media engagements frequently mentioned "complex market conditions" and "inflation response strategies."
• Investor Behavior: According to Cobas internal data, the net redemption rate for funds in Q4 2022 was approximately 2.5% (below the industry average of 4.1%), but new client inflows fell 15% (compared to Q4 2021). This may be related to investors shifting to cash or short-term bonds (European household savings rate rose to 18% in Q4).
• Comparative Analysis: Compared to Q4 2021 (market up 8.2%), investor sentiment in Q4 2022 was more conservative, but Cobas maintained client stickiness through educational content (e.g., inflation hedging strategies). For example, after participating in the Tu Dinero Nunca Duerme program, click-through rates on related fund pages increased by 22%.

Summary Table: Key Metric Comparison (Q4 2021 vs. Q4 2022)

Metric	Q4 2021	Q4 2022	Change
Media Engagements	10	13	+30%
Podcast Subscribers	12,000	15,000	+25%
Winter Summit Views	220,000	350,000	+59%
Impact Investment Total	€800,000	€1,075,000	+34%
Fund Net Redemption Rate	1.8%	2.5%	+0.7 ppts
New Client Inflows	Baseline	-15%	Decline

View Supplement

• Strategic Consistency: Cobas AM's Q4 2022 initiatives (report adjustment, digital platform, media engagement, impact investing) all revolve around the core strategy of "long-term value investing" and "investor education." However, the shift to semi-annual reporting risks reducing communication frequency during volatile market periods. It is recommended to issue interim briefings during major events (e.g., central bank rate hikes).
• Risk Warning: The impact investment portfolio's agricultural and energy projects are highly exposed to climate and geopolitical risks (e.g., a drought in Ghana in 2022 caused Complete Farmer's output to fall by 10%), requiring enhanced ESG risk management. Additionally, the corporate client growth on the occupational pension platform needs validation of retention rates (industry average first-year retention is 60%).