Spanish value managers go on buying spree as quality stock prices tumble

Some quality stocks have dropped to lows only occasionally seen in a 20-year career in asset management, so providing a “historic” buying opportunity for veteran Spanish fund managers Fernando Bernad and Alvaro Guzmán de Lázaro.

Writing in the firm’s latest quarterly report Bernad, of Madrid based Azvalor asset management, said this opportunity was even more important given stock and bond markets were generally hitting historic records and given that markets were showing signs of “euphoria” and “bubble like behaviour”.

He said, “Today, the opportunity appears to us even clearer as we are seeing more and more symptoms of the speculative mood and irrationality in the market. These are signs that remind us of other periods we have lived through professionally. We see many similarities today with the year 2000 as we have a market where what is popular rises with bad news and what is unpopular is crucified under any pretext. We believe this is a market that is ceasing to ‘calculate’.”

Bernad, who is co-CIO with CEO Guzmán de Lázaro and who together have been running international stocks for over 20 years, continues to point out their portfolio is “cheap” but argues in the latest newsletter that while markets could sometimes be extremely inefficient in the short term, in the longer term, they tended to correctly reflect the value of the underlying assets. The duo continues to express confidence in their portfolio which contains several undervalued mining and oil stocks such as Cameco, Buenaventura, Tullow Oil and Consol Energy.

In highlighting the capricious nature of the current market, Bernad gives several examples of quality stocks which were being ignored by many in favour of overpriced fashionable stocks. For example, he noted that Tullow Oil recently reached a nadir of 35% of its 2018 peak yet had recently announced a significant oil exploration success in Guyana, news of which went only some way to mitigating the price fall.

“In our view, the recent performance of many of our investments provides important ‘clues’ about the lack of insight and calculation in the market. What makes this observation so important is that as it turns out, the latest declines have paradoxically occurred when the fundamentals of our chosen companies were improving,” said Bernad.