Portfolio Note October 2023

Theme and Background

This chapter is the introduction to Cobas AM's October 2023 investment report, reviewing fund performance through the end of September and elaborating on its investment philosophy and operational logic. The report argues that despite market volatility, the fund enhances portfolio potential through internal weight rotation rather than adding new holdings, and key holdings have begun to deliver expected results.

Core Views

• Fund performance remains decorrelated: Since the end of 2020, the International Portfolio has appreciated over 115%, and the Iberian Portfolio over 100%, maintaining nearly three years of decorrelation from market trends.
• Internal rotation is the core value-add: The report points out that the current market offers no new opportunities with quality and price superior to existing holdings. Therefore, the fund does not actively add new companies but instead sells holdings approaching target prices and buys underperforming ones to enhance portfolio potential.
• Short-term volatility is an opportunity, not a risk: The author believes that short-term irrational or volatile market declines present a chance to improve average purchase prices, with typical examples including operations in Exmar and International Seaways.

Key Arguments and Data

• Performance data: As of the end of September 2023, the International Portfolio returned +9.7%, the Iberian Portfolio +17.9%, and the Large Cap Portfolio +7.0%.
• Cumulative performance: Since the end of 2020, the International Portfolio has appreciated over 115%, and the Iberian Portfolio over 100%. Fund net asset values have recovered above issuance levels but remain below long-term expectations.
• Performance catalysts: In 2023, key holdings such as Maire Tecnimont, Babcock, and Danieli began delivering long-anticipated results, bringing optimistic expectations for future quarters.
• Historical comparison: The report notes that during the significant market decline in 2022, this strategy still achieved double-digit returns, while other assets performed negatively.

Companies/Assets Involved

• Maire Tecnimont: A key holding that began delivering expected results in 2023, bullish.
• Babcock: Same as above, bullish.
• Danieli: Same as above, bullish.
• Exmar: A past operational case where volatile declines improved the average purchase price, bullish.
• International Seaways: Same as above, bullish.

Investment Insights

• Focus on internal rotation rather than new targets: Investors should learn from Cobas's strategy of dynamically adjusting existing holdings based on the deviation between price and target value, rather than blindly chasing new opportunities.
• Use short-term volatility to increase positions: When quality companies' stock prices decline due to irrational or liquidity reasons, it should be seen as an opportunity to add positions, not a reason to panic sell.
• Be patient for value realization: The report emphasizes that the crystallization of value in stock prices takes time. Investors should focus on companies capable of surviving and thriving in any economic environment and maintain patience.