British-based investment company Chelverton Asset Management confirmed today an addition to its stable of funds.
The Chelverton European Select Fund will be co-managed by Dale Robertson and Gareth Rudd, who joined the firm in October 2017, and will launch in early March.
The new fund will invest in the main markets of Europe ex-UK, with an unconstrained Multi-Cap strategy. The managers will apply a disciplined, four-stage, cashflow based valuation process, ascribing a “valuation anchor” to each potential investment. This will deliver a balanced portfolio of some 30-50 strongly cash-generative companies trading at a significant valuation discount. Drawing on Robertson and Rudd’s career experience, the approach complements Chelverton’s existing cashflow-orientated process.
Commenting on the launch, Robertson says: “Our opportunity is to apply a Modern Value Investing approach. A decade of free money has led to the repetition and extension of very common behavioural mistakes, namely overpaying for growth and a failure to address structurally challenged businesses. Our approach aims to be ‘value without the traps’. We see both structural and cyclical inefficiencies in markets and are excited about the opportunities this presents.”
He continued: “As a result of MiFID II, sell-side research capacity will be gradually withdrawn at the smaller end of the market. This will create a vacuum and bring about mis-pricings, which will in turn create opportunity. As that opportunity will for the most part be in Small Caps, very few managers will be able to capitalise, and we will therefore limit the capacity of the strategy to ensure we can continue to benefit.”
According to Rudd, the market pays “scant attention” to some of the ‘hidden’ but crucial aspects of cashflow delivery, namely working capital intensity, fixed capital intensity and cash conversion; as such, the duo has placed free cashflow analysis at the heart of their process. Rudd believes “Europe is a fascinating region to be investing in. There is so much variety”, he said.