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 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.
A core belief of ours at Bireme Capital is that human cognitive biases drive security mispricings. This is not to say that we don’t believe in mostly-efficient markets, or that we are unaware that investor biases often cancel each other out. We simply believe that, occasionally, biased investors bunch together on a single side of the ledger, resulting in a mispriced stock.
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
Fundamental Value (FV) was down 1.05% in Q1, slightly trailing the -1.0% total return of the SPDR S&P 500 ETF (SPY). Since inception, FV has returned 22.7% annualized (net) vs 15.4% for SPY, an outperformance of 7.3% annually.
Fundamental Value had an exceptional quarter, up 10.7% gross vs the S&P 500 which was up 6.8%. For the year, FV finished with a 28.2% gross return vs the S&P’s 21.7%. The positive relative results were notable given the material cash balance carried throughout the year and the fact that traditional value indices underperformed in 2017, a headwind for our strategy which tends to favor such stocks.
Fundamental Value had a solid quarter, returning 4.2% on a gross basis. This return slightly trailed the S&P’s 4.4%, and brought gross returns to 35.3% and 22.5% for FV and the S&P 500 respectively since FV’s inception in June 2016.
We’re proud to report that, as of the middle of the second quarter, Bireme has been actively investing for over a year. There have been trying and frustrating times, but by and large, starting a business has been exciting and rewarding. We sincerely thank you for your trust. We couldn’t have done it without you.