Shaw, senior portfolio manager at Syz Asset Management, said she’s a contrarian investor with a 3-5 year time horizon for investment.
“We look for out-of-favour sectors, geographies and themes and invest in high-quality businesses that are being punished in the short-term.”
She defines a high quality company as a market leader with high returns, a good management team, strong balance sheet and a low fixed-cost base.
Shaw manages the Oyster European Mid & Small Cap Fund, which focuses on domestic European companies. However, in the last six weeks she used cash to increase exposure to two European companies that derive substantial revenues from emerging markets.
EM picks
The first is UK-based Ashmore Group, an asset management firm that invests only in emerging markets.
Due to souring EM sentiment, Ashmore’s share price has been hit hard. Shaw said the firm’s attractions include $365m in cash on the balance sheet, strong performance across all its funds over three years, strong management and a very cheap price.
“Ashmore is being punished on sentiment as opposed to fundamentals. The market is not appreciating the fact that 80% of the firm’s client base is institutional, which is a more sticky investor base.”
Ashmore now represents just over 4% of the fund.
The second company is UK-based Aggreko, a supplier of temporary power generating equipment that derives more than 50% of revenues from emerging markets.
Developing markets use the company’s equipment because domestic electricity grids are often inadequate. However, EM economic growth has been weak, so the need for temporary power is down. As a result, the company’s share price fell 50% compared to two years ago.
But Aggreko has 40% global marketshare and is a low-cost manufacturer of its own equipment. “It has a strong balance sheet and competitive advantage, little debt, strong margins and is trading cheap.”
Over a five-year horizon temporary power demand is expected to grow at a 6% CAGR, she added.
Russia playbook
Last year, when the tensions between Ukraine and Russia were high, Shaw said she bought some European companies with significant Russia exposure.
“It was the same story. Any company with a certain amount of revenues from Russia was severely punished by the market.”
Two picks which she made back then that now have substantially improved share prices are Finnish companies Nokian Tires and paint manufacturer Tikkurila, businesses which are not subject to economic sanctions.
“Everyone was dumping Nokian because 45% of revenues are from Russia. But it’s the most profitable tire manufacturer in the world with a rock solid balance sheet and is paying a 5% dividend yield.”
Volatility welcome
As a stock-picker, Shaw said she likes market volatility because it “gives more options for mispricing”.
Market or macro-economic risks are not her main concern.
“The biggest risk is something happening to a company that comes out of nowhere, such as a Volkswagen [emissions scandal] scenario. No analyst could foresee that coming.”
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One-year performance of the fund versus its benchmark:
