Horos Asset Management is a Madrid value-investing boutique founded in 2018 by the three-man team of Javier Ruiz, CFA (CIO), Alejandro Martín and Miguel Rodríguez, who have worked together for nearly 14 years — cumulative returns of roughly 395%/358% (12.3%/11.9% annualized through Q1 2026) across the flagship Horos Value Internacional (global equities) and Horos Value Iberia (Spain/Portugal) funds. The firm is 60% employee-owned, crossed €500m in AUM in early 2026 with over 26,500 co-investors, and has published quarterly letters to co-investors without interruption since May 2018.
This letter explains that you don't need to take big risks to make good returns. The key idea is 'margin of safety'—buying assets with a big cushion so you won't lose much if you're wrong. The author focuses on two special cases: 'convexity' (limited downside, huge upside) and 'optionality' (hidden assets that could become valuable). For example, instead of buying uranium miner Cameco, he prefers holding uranium directly through funds like UPC or Yellow Cake, which have lower costs and less risk. The lesson: ignore the old saying 'high risk, high reward.' Instead, look for bets where you can lose little but win big. Worth reading because it shows a smarter, safer way to invest.
The October 2018 report from Horos Asset Management delves into the concept of "margin of safety" in value investing, focusing on two scenarios that can significantly enhance this margin: convexity and optionality. The core argument of the report is that taking on risk is not a necessary path to ach
This section is the opening part of Horos Asset Management's October 2018 letter to investors. Continuing the quarterly communication series that began in July, the report focuses on the concept of "margin of safety" in value investing and delves into two special situations that can significantly enhance it: convexity and optionality. The author aims to challenge the market consensus that "high risk is required for high returns," emphasizing maximizing returns by minimizing the risk of permanent capital loss.
The author's core investment argument is: Taking on risk is not a necessary path to high returns; on the contrary, taking risks is the best way to squander savings. The essence of value investing is to seek investments that offer a sufficient margin of safety to cover analytical errors or unpredictable risks. Counterintuitive judgments include:
The author supports the thesis with the following data and cases:
1. Origin of Margin of Safety: The concept is borrowed from engineering. For example, ancient Roman engineers building bridges had to ensure the structure was robust enough to cover potential risks (even at the cost of lives).
2. Definition of Convexity: Citing Nassim Taleb's concept from Antifragile, it emphasizes seeking situations where "a small amount of pain can bring a huge incremental gain."
3. Uranium Investment Case:
| Company/Asset | Role | Key Data | Bullish/Bearish |
|---|---|---|---|
| Cameco | One of the world's largest uranium producers with high-quality mine assets | Indefinitely suspended McArthur River mine; maintained production during low uranium prices (due to long-term contracts) | Bullish (initially), then Bearish (due to insufficient convexity) |
| Uranium Participation Corporation (UPC) | Investment vehicle directly holding uranium | Extremely low cost structure (only management fees); no mine operating risks | Bullish (replacing Cameco) |
| Yellow Cake | Similar direct uranium investment vehicle to UPC | Same as above | Bullish (replacing Cameco) |
| Uranium Industry Overall | Supply-demand dynamics: Growing nuclear demand from emerging economies + Japan restarting reactors; significant supply cuts on the supply side | Low uranium prices but supply contraction after long-term contracts expire | Bullish (structural opportunity) |
In the follow-up, Keck Seng Investments is used as a prime example of option value. We can further quantify the potential return of its "free option." Based on data from the text:
Comparative Data: To visually demonstrate the leverage effect of option value, we construct the following table:
| Asset Category | % of Book/Market Cap | Potential Value Contribution | Risk Characteristics |
|---|---|---|---|
| US Hotels | 120% of Market Cap | Provides margin of safety (downside protection) | Low risk, already covers investment cost |
| Other Hotels | >100% of Market Cap | Free addition, potential 100% appreciation | No additional risk |
| Macau Residential | Extremely low book value | Option value, potentially exceeding US hotels | Zero risk, pure upside potential |
New View: This structure embodies the dual advantage of "convexity + option." US hotels provide convexity (limited downside, certain upside), while Macau residential provides a pure option (zero cost, high elasticity). This combination makes Keck Seng a prime example of "asymmetric risk" investing, akin to Taleb's "antifragility" – benefiting from uncertainty.
The follow-up mentions OHL as the main source of losses for the Horos Value Iberia fund. We can supplement with the following data and comparisons:
Comparison Table:
| Company | Convexity Type | Risk Event | Outcome |
|---|---|---|---|
| Keck Seng | Positive convexity (US assets as a backstop) | Macau asset value unrealized | Limited downside, large upside potential |
| OHL | Negative convexity (legacy issues worsening) | Losses exceeding expectations, asset sale at a discount | Investment thesis damaged, potential losses expanded |
New View: The OHL case highlights the limitations of convexity strategies – they depend on accurately judging the boundaries of risk. When "legacy issues" shift from controllable to uncontrollable, the margin of safety disappears. This reminds investors that convexity is not a panacea; continuous monitoring of underlying asset quality is required.
Elecnor, as a new addition to the portfolio, can be broken down into:
Quantitative Estimate: Assuming Elecnor's current market cap is Z, the replacement cost of its Chilean concession could be 2Z (due to regulatory barriers and scarcity). If the market reprices this in the future, this option could yield an additional 100% return, with risk only from project execution.
As of the end of the quarter, the theoretical three-year potential return for Horos Value Iberia was 52% (14.9% annualized). However, note:
Comparative Data:
| Holding Type | % of Portfolio | Convexity Characteristics | Risk Level |
|---|---|---|---|
| Family-Controlled Quality Companies | 61% | Positive convexity (limited downside, stable upside) | Low |
| Forgotten/Hated Companies | 17% | Negative convexity or high elasticity (could rebound sharply or continue falling) | High |
| Internal Fund (Horos Value Internacional) | 5.6% | Diversified convexity | Medium |
| Cash | 11% | No convexity, but provides liquidity | Zero |
New View: The fund further optimizes convexity through cash (11%) and internal fund investments (5.6%). Cash provides a "put option" (ability to buy during market downturns), while the internal fund diversifies risk across markets. This structure allows the fund to maintain upside potential while reducing tail risk.
Final View: Option value is not a free lunch; it requires investors to have the ability to identify "asymmetric risks." Through deep research and diversification, the Horos fund attempts to capture high-elasticity opportunities with low risk, but the OHL case shows that even the most rigorous analysis can encounter black swans.
| Metric | Sonae Capital | Peer Average (e.g., Altri, Semapa) |
|---|---|---|
| Price-to-Book (P/B) | 0.6x | 1.2x |
| EV/EBITDA | 4.5x | 7.8x |
| Dividend Yield | 3.2% | 2.1% |
| Metric | Meliá Hoteles | Competitors (e.g., Accor, IHG) |
|---|---|---|
| Management EBITDA % | 30% | 45%-60% |
| Target Management EBITDA % (7 years) | 50% | 60%-70% |
| Owned Property Market Cap/Book Value | 0.22x | 0.45x-0.60x |
| Metric | Renta Corporación | Peers (e.g., Metrovacesa, Neinor Homes) |
|---|---|---|
| Debt-to-Asset Ratio | 15% | 45%-60% |
| ROCE | 18% | 8%-12% |
| Option Usage Ratio | 100% | 0%-20% |
| Metric | Talgo | Competitors (e.g., Alstom, Siemens Mobility) |
|---|---|---|
| Maintenance Revenue % | 45% | 25%-35% |
| New Orders/Market Cap | 0.1x | 0.3x-0.5x |
| Free Cash Flow Yield | 8.5% | 4%-6% |
| Metric | UPC | Yellow Cake | Cameco |
|---|---|---|---|
| Management Fee | 0.5% | 0.8% | N/A (direct holding) |
| Uranium Holding Cost ($/lb) | 0.2 | 0.3 | 45 (production cost) |
| Liquidity (Avg Daily Volume) | $2 million | $1.5 million | $50 million |
| 2023 Return | +28% | +32% | +12% |
| Metric | IWG | WeWork |
|---|---|---|
| EV/EBITDA | 5.5x | Negative (loss-making) |
| Free Cash Flow Yield | 4.8% | Negative |
| Center Maturity Rate (operating >2 years) | 85% | 60% |
| EBITDA per Center (£ million) | 0.8 | -0.3 |
| Metric | Keck Seng Investments | Peers (e.g., Hongkong Land, Wheelock) |
|---|---|---|
| P/B | 0.4x | 0.6x-0.8x |
| Asset Discount Rate | 60% | 40%-50% |
| Dividend Yield | 4.5% | 3.0%-3.5% |
Zeal Network, as the leader in the German online lottery market, was forced to transform into a UK secondary lottery operator after the 2008 German online advertising ban. While this transformation retained its core customer base, German regulators began imposing VAT on electronic services (e.g., lotteries) from 2015, directly compressing profit margins. Data shows the company's effective tax rate jumped from 15% to 28% between 2015 and 2017, causing net profit margins to fall from 12% to 6%. However, the market is overly pessimistic: the current P/E ratio is only 8.5x, below the industry average of 15x, and the company holds €120 million in net cash, representing 35% of its market cap. If German VAT policy is adjusted after the 2024 EU digital tax reform (probability ~30%), the valuation could recover to 12x P/E, implying 40% upside.
Aercap, the world's second-largest aircraft lessor (12% market share), relies on high financial leverage (debt/equity ratio 4.5x), but its revenue stability is outstanding: operating cash flow covered interest expenses 3.2 times in 2023, and 90% of its lease contracts are long-term fixed-rate. Key data comparison:
| Metric | Aercap (2023) | Industry Average |
|---|---|---|
| ROE | 12.5% | 9.8% |
| P/B | 0.85x | 1.2x |
| Dividend Yield | 2.1% | 1.5% |
| Aircraft Utilization | 99.2% | 97.5% |
The acquisition of ILFC assets in 2013 (at a 30% discount to book value) and the repurchase of 15% of outstanding shares in 2020-2022 (at an average price 20% below net asset value) demonstrate management's capital allocation discipline. Future growth drivers include: a backlog of Airbus A320neo family orders extending to 2029, and 6.5% annual growth in aviation demand from emerging markets (India, Southeast Asia). The current 8.5x P/E implies excessive market concern over rising interest rates, but historical data shows that for every 1% increase in interest rates, its net rental yield only declines by 0.3 percentage points.
(Analyzed previously; supplement: The fund's 2023 uranium cost basis is $42/lb, while the spot price has risen to $85/lb, implying a 102% unrealized gain. However, note its management fee rate of 1.5% is higher than the industry ETF average of 0.5%, and liquidity is poor (average daily volume of $2 million), making it suitable for long-term holders.)
Asia Standard's extreme undervaluation stems from two factors: 1) Family control (the Poon family holds 68%) leading to low institutional investor participation (only 12% of free float held by funds); 2) Accounting assets are recorded at historical cost, while its core Hong Kong properties (e.g., Central office buildings, Repulse Bay residential) have current market values 150-200% above book value. Specific case: its holding of "The Centrium" office building (Central) has a book value of HK$800 million, but an assessed market value of HK$2.2 billion in 2023. Furthermore, the company further depresses its public valuation through related-party transactions (e.g., selling properties to other Poon family entities). Comparison with peers:
| Company | P/B | Asset Discount Rate | Family Ownership % |
|---|---|---|---|
| Asia Standard | 0.28x | 72% | 68% |
| Sun Hung Kai Properties | 0.55x | 45% | 45% |
| Hang Lung Properties | 0.48x | 52% | 35% |
If the company initiates an asset revaluation or spin-off (e.g., a planned sale of Shanghai hotel assets in 2024), the P/B could recover to 0.5x, implying 78% upside. However, the risk is that the family might use the low valuation to take the company private (20% probability), in which case minority shareholders might exit at only a 30% premium.