It’s a truth universally acknowledged that an asset manager who yields the best results will attract the greatest amount of inflows into their fund(s). However, due to the marketing muscle of the big players and the importance AUM is placed on fund selection by both platforms and investors, this truth has been called into question.
“If you invest in a fund managed by a big company, it enables the manager to have average returns without a problem,” William Higgons (pictured), manager of Indépendance et Expansion, told Fundeye. He added that being part of a smaller firm, it’s impossible to ‘hide from lousy performance, boutiques vanish if the alpha is not there’.
This is not a problem for Mr Higgons’ funds as they have consistently outperformed their respective benchmarks over various time periods, from year-to-date to five years annualised. Indépendance et Expansion has two funds, one focusing on France and the other Europe in general. They both follow the same investment philosophy and as Mr Higgons has been at the helm for over 30 years, has one of the longest track records in the market.
The manager is a value enthusiast, to such an extent that he said, “If there was a value index without any banks, I would invest”, a strange comment for an active manager to say some might say.
He spelt out his investment process in simple terms; he looks for stocks with a discount to price to cash earnings based on historical data or what is essentially net value minus depreciation. He said the fund’s advantage, which has seen it consistently outperform, is that he invests in companies with high returns on equity although with an added caveat of having an average 30 percent discount to cash earnings.
The fund itself is highly concentrated, with 40 holdings and around 50 percent of the funds’ assets held in the top ten stocks. This means that Mr Higgons is not as concerned with ‘value traps’ as other managers, as he discloses that most of the fund’s outperformance comes from a few great stock picks.
However, these positions take time to build up as he said that when buying a new stock it would it not normally be more than three percent of the fund. This is perhaps why he describes his style investing as ‘momentum value investing’ as those firms he has chosen should continue to outperform and become a bigger proportion of the portfolio.
Unlike many market participants who freely admit that growth stock investing has dominated for the last decade at least, Mr Higgons isn’t convinced. Again, he feels that if financials such as banks are stripped out, value stocks have performed well. Regarding the idea that a smart beta product could probably achieve this aim, at a lower cost, Mr Higgons said that he would probably be a smart beta investor if the term had been in existence 30 years ago when he started his career.
Given the market mayhem caused by the global pandemic, an annual turnover figure is difficult to work out for this fund. However, if 2020 is stripped out, the figure is around 25 percent which for a small cap manager is not particularly high.
Going forward and in the wake of Covid, there are some sectors that Mr Higgons has entered that he might otherwise have not. For instance, he has taken positions in communications and advertising stocks whereas usually they would be too expensive for his dyed in the wool value fund.
Mr Higgons home market is France, a hub for boutique firms, many of which get snapped up by larger players with a multi-boutique model such as Natixis. ‘If someone offered me a decent price for company, who knows?’. After the recent acquisition of multi-boutique firm Legg Mason by Franklin Templeton, there seems to be a desire to offer a multitude of solutions to investors no longer happy with the big brand growth approach to investing. Who knows indeed.
