MondoAlternative just published the second 2014 report on the alternative UCITS sector. Luca Riboldi – Banor SIM CIO, Advisor Banor SICAV Italy Long Short fund – has been interviewed on the italian market’s outlook.
Read the full article below.
“Confidence in equity linked to domestic real estate, media and utilities stocks”
For Luca Riboldi, CIO of BANOR SIM, in 2015 a number of factors will lead to an increase in domestic demand in Italy that will once again boost GDP growth
by Alessandro Moise
BANOR Capital Ltd is an independent company based in London and created in 2011 by a team of professionals who have been working together since 2001. BANOR is a key partner for institutional and private clients seeking a fund manager adopting a value approach. BANOR Capital Ltd (UK), with its associated companies BANOR SpA (Italy) and BANOR SICAV (Luxembourg), is part of a management-controlled group whose sole objective is to provide the highest possible standards in investment management solutions. Assets Under Influence (AUI) amount to over 4.2 billion euro, of which 1.8 billion under discretionary management.
BANOR SICAV is the feather in the company’s UCITS IV cap, a multi-segment fund with 5 sub-funds: 3 alternative long/short funds (North America, Italy and Greater China), an equity fund (European Value) and a bond fund (Euro Bond Absolute Return). The performance of the long/short funds recently won them excellent positions in the international lists. BANOR SICAV–North America Long Short Equity also won the 2014 MondoAlternative Awards in the Best Alternative UCITS Fund 2014-Long/Short Equity USA category.
The domestic real estate, media and utilities segments of the Italian stock market are an investment opportunity right now. Of this, Luca Riboldi, BANOR SIM’s chief investment officer and advisor for the BANOR SICAV Italy Long Short Equity fund, is convinced. He told MondoAlternative he also expects higher than anticipated growth in the Italian economy in 2015, spurred by 3 principal drivers: the weak euro, the downwards pressure on raw material prices and the reform plan contained in the Renzi Government’s Jobs Act.
This year you’ve changed the name of your funds hosted on BANOR SICAV. More specifically, the BANOR Athena Long Short fund was renamed BANOR SICAV Italy Long Short Equity. Did this involve changes in your management philosophy and commission structure? We haven’t made significant changes in the management of the fund, as its investment strategy is essentially unchanged. In cost terms, however, the product’s performance fee (15% with a high watermark clause) has been adjusted to align it more closely with that of our other funds.
What are the key features of the BANOR SICAV Italy Long Short Equity fund and how has it evolved over the years? The product, for which we take a Long/Short investment approach, was launched in January 2009 after I joined Banknord (as BANOR was previously called) in the role of investment director, and Angelo Meda joined as head of equities. At present our internal buy-side research team numbers six analysts. Keeping the focus on Italy, each analyst covers from 2 to 4/5 sectors at the European or global level, depending on the competitive dynamics at any given time. In performance terms, the goal of the BANOR SICAV Italy Long Short Equity fund is to beat the Italian index over the long term, and with lower volatility. Since 2009, the net return of the strategy has been about 55% higher than its benchmark, with an average net long position of around 45%.
What’s your market exposure? The typical long element has average positions of around 2/3%, and the short element of around 0.70/0.80%. On long positions we invest from a long-term value investor perspective, keeping the stocks until we reach what for us is their target price. On the short side of the portfolio, we go short on stocks which, in addition to being highly priced, must also show a short-term catalyst. We continue to pay close attention to sectoral correlations to ensure that we’re not too exposed in any single investment area. Our strong point has been stock picking, which in the past has enabled us to generate a notable outperformance (alpha).
Can you tell us in more detail how you select which stocks to invest in? Each week we review at least 4 sectors with our analysts (we have two weekly meetings, at each of which we review a couple of sectors). We examine the balance sheet, income statement and cash flow statement models. And each day we hold a morning meeting where we examine the positions in the portfolio and any stocks we’re monitoring for a potential investment.
That said, we use different evaluation methodologies from one sector to another. With the more stable business models we rely primarily on the dividend discount model (DDM) or discount cash flow (DCF) to take long or short positions on the basis of the discounted future dividend or cash flows. For these stocks, we also look at the company’s historic price/earning ratio to understand if it has been on higher or lower multiples with respect to the current growth rate.
Turning to more cyclical businesses, we don’t feel it’s appropriate to use the DDM, DCF or P/E. We prefer to analyse the historic price to book value and the EBITDA to sales; we also monitor the momentum very closely. In short, for cyclical stocks we look at the company’s history and try to anticipate the consensus revision, while for growth stocks we concentrate more than anything else on discounted future flows and on historic price/earnings ratios.
Do you think the time is right to invest in the banking sector? At the start of 2014 we took a neutral position on banks and insurance companies. Then in the course of the year we reduced the under-weighting of financial stocks, while we’re now moving towards neutrality on the sector because we think the major Italian banks are well capitalised. In future we could move beyond neutrality on the banking sector if GDP growth exceeds expectations in 2015: if that happens, the banks’ bad debts could be absorbed and they’d have significant contingent assets.
Focusing on Monte dei Paschi di Siena (MPS), Borsa Italiana [the Italian stock exchange] recently suspended short selling of its stocks. Did this have any impact on your operations? Not at all, because before trading was suspended we didn’t have any position in MPS. We think, rather, that an increase in capital by the bank [taking the share price] to around 0.5 euro could provide a good entry point: the decision to increase the capital by 2.5 billion euro also means that MPS will be able to repay the high-priced Monti bonds.
Which other non-banking sectors do you see profitable investment opportunities in? If we broaden the investment horizon, the sectors we see as attractive are those linked to the domestic economy, especially real estate, media and local utilities. Italian shares overall are less interesting right now, even though they refer to high quality companies (for example Luxottica, Brembo, Pirelli). That’s because of their somewhat tight valuations and their momentum, and the macro context, with the global economy slowing down and some of the BRICS countries in difficulty. Brazil and Russia are stagnating, while even China will see growth slow next year, to 6%.
And how are you positioned in the energy sector? In the case of oil we’re negative on oil services, where we’re short, and we remain under-weighted on the integrated energy side.
Do you think Italy can return to growth in 2015? For next year we expect Italy to grow, with growth led by three main factors: the euro will remain weak and this will help both tourism and Italian exports; the fall in oil and raw materials prices will bring an improvement in our companies’ margins and at the same time increase Italian consumers’ spending power; and lastly, the Renzi Government’s Jobs Act reform plan should lead to increased competitiveness, while the cut in the employment element of IRAP [the regional tax on production] is a first step to encourage companies to invest in Italy. If to these factors we add the structural 80 euro and maybe the transfer of the severance pay component of salaries/wages [previously withheld at source] to the pay packet, we believe that a better-than-expected increase in domestic demand will lead to a good performance by domestic stocks.
What form does your risk management system take?The best way to manage risk is to have a highly liquid and easily convertible portfolio with no structured positions and few non-liquid stocks. 90% of the BANOR SICAV Italy Long Short Equity fund can be converted in three hours, 7% in one day and the remaining 3% in three days. Apart from that, we cover ourselves from tail risk by buying puts.
At company level, what new initiatives are you studying for the future? Focusing on BANOR SIM, we want to grow in the private banking sector and are looking to recruit high quality private bankers with portfolios of over 100 million euro. We’re also expanding our advisory work to family offices and have boosted the corporate finance area.
Lastly, have you any new products ready for launch?BANOR Capital is launching a new SICAV with an initial segment dedicated to advanced liquidity management and with a very substantial starting capital to satisfy demand from some of our important institutional clients. A second segment of the new SICAV will adopt equity strategies, including the use of options. The launch is planned for January 2015.
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