As the crisis lingers on with
the risk of Greek default and the to-ing and fro-ing of the various political
leaders, investors are worried about the risks of default by sovereign
borrowers, the extremely low level of short-term rates, the risk of zero growth
in Europe and the US, market volatility, etc. Basically, there is zero
visibility and they have no idea what strategy to adopt.
However, despite this troubled
environment, the most globalised companies are proving surprisingly resilient
in view of the fact that most analysts predicted sharp falls in profits against
a backdrop of virtual world recession. Although it is difficult to generalise, it
is clear that since the 2007 crisis companies have learnt to manage their
results in a shifting environment and that some industries, such as the luxury
industry, are impertinently showing good health compared to other sectors that
have been led astray by expectations of a general slowdown.
We have a paradoxical
situation in which many companies are posting unprecedentedly high levels of
dividend yield, whilst, for some of them, every dip in their share price leads
to a sharp fall in their net asset value, exposing them to a hostile or gradual
takeover.
In this highly volatile
environment, do companies with the best corporate governance practices perform
better than their peers? This theory, hotly debated by socially
responsible analysts, acquires full relevance in the midst of the crisis, as it
poses a direct question as to the most efficient criteria for identifying the
companies that will be able to weather the crisis without sinking.
Our investment strategy proved
highly resilient to this summer’s stock market crisis and financial market
volatility, enabling us to outperform the CAC 40 (dividends reinvested) by 2.1%
in 2011 year to date. This performance has been made possible by a cautious
approach to risk, with a tracking error of 2.4% despite increased market
volatility since June 2011.
This original investment
strategy that is applied to our Proxy Active Investors fund has been built on
our experience as engaged minority shareholders since 2004. The originality of
the method consists mainly in its combination of quantitative management (aiming
to identify the impact of corporate governance on the evolution of the
company’s share price) and qualitative management (aiming to take account of
companies’ “reactivity” to our suggestions to improve their corporate
governance).
By overweighting companies
that have listened to us, and by underweighting companies that haven’t, we have
built up a portfolio that embodies a conviction: the best governed companies,
and those that listen to their shareholders, are in the best position to be
able to adapt to stakeholder developments in their efforts to survive the
crisis and ensure the successful development of their business model.
Our results so far this year
show that this approach is proving resilient to the present crisis, and we hope
that you will join the investors who have chosen to trust us in the
implementation of conviction-driven management that listens to shareholders.
Olivier de Guerre
PhiTrust
Active Investors
Investor and
Shareholder
