One of our favorite current holdings, Bollore SA, is a conglomerate that we think trades at a large discount to fundamental value. Bollore has an underappreciated and rapidly growing asset in music label Universal Music Group though Bollore's stake in Vivendi. Bollore also offers a large discount at the corporate level driven by availability bias, a bias that causes shareholders to focus on the most available information – in this case, the reported share count.

The share count as disclosed in Bollore’s financial statements (2.9b) is actually more than twice the economic shares outstanding (1.4b by our calculation). The true economic share count is smaller than the reported figure because most Bollore shares are self-owned by subsidiaries in a complicated web of crossholdings. We suspect that many investors have overlooked this information due to its obscurity, or ignored it due to its complexity. This has caused them to undervalue Bollore by a factor of two. At Bireme, we've meticulously analyzed and transformed the crossholding data into a graphic that we think demonstrates our claim about the share count in a clear and intuitive way.

In the figure we’ve created below, each row represents an upstream holding company affiliated with Bollore. As many of the upstream companies which own pieces of Bollore are partially owned by Bollore itself, self-ownership accumulates as we travel down the graph towards the operating company.

The final row shows the true economic ownership of Bollore after accumulated self-ownership has been subtracted out. 52.1% of Bollore’s outstanding shares are indirectly self-owned. They should be treated as treasury shares and can be subtracted from the total share count. Thus, public shareholders actually own 74.5% of Bollore, rather than the reported 35.7%.

The first quarter of 2019 was one of Fundamental Value's largest gains since inception, returning 11.5% net versus a gain of 13.5% for the S&P 500. For the S&P, this was merely a reversal of losses created in the fourth quarter, when the market dropped -13.5%. Since FV only dropped -9.4% in Q4, we've come out 2.9% ahead during this 6 month period.

Since inception, FV has gained 18.4% annually net of fees, beating the market by 5.2% per year. A hypothetical investment of $100,000 in FV at inception would have turned into $168,000 at the end of Q1, compared to $132,000 if invested in the SPY ETF.¹

The Fundamental Value strategy returned -9.4% net of fees in Q4, a disappointing result on an absolute basis but an outperformance of 4.1% relative to SPY, the S&P 500 ETF. For the year, FV lost -1.1% after fees vs SPY’s decline of -4.6%. Since inception, the strategy has outperformed by 6.3% annually after fees, a result we work hard every day to sustain.¹

Fundamental Value had a solid quarter, returning 7.71% gross of fees, in line with the S&P 500 ETF’s return of 7.65%. This brings the portfolio’s annualized outperformance, after typical fees, to 5.4% since inception.¹

FV slightly trailed the market in Q2, returning 3.3% before fees vs 3.6% for the SPDR S&P 500 ETF (SPY). This brings the portfolio’s annualized outperformance, after typical fees, to 6.1% since inception.¹