“I started with me, myself and I with me as an employee, myself as a client and I as one million,” recalls Jean-Pascal Rolandez (pictured), founder of LT Funds, a Swiss boutique.
Mr Rolandez might joke about the firm’s humble beginnings but since then it has attracted almost a cult following, with SharingAlpha’s global membership of elite fund selectors picking the firm out from the masses.
The firm has a variety of strategies, all generally following a similar growth at a reasonable price (GARP) style, although Fundtruffle focused on its European General fund and Japanese General fund with the former having a 22-year track record.
When it comes to the description of the firm as a boutique, Mr Rolandez’s answer brings to mind another famed value investing manager, William Higgons, who said ‘boutiques vanish if the alpha is not there’. Mr Rolandez’s take on the subject is, “You cannot justify yourself by saying you're a boutique firm over the long term if you do not outperform the benchmark”.
He adds “a boutique firm must have an investment process and whatever it is, it has to be consistent”. This is to suggest that a firm needs to have its style deeply imprinted on its funds to separate it from the faceless masses of what ESMA deems ‘producers’ or what we would call asset managers.
What makes LT Funds unique? We’ve discussed its long track record but also the firm, which has high conviction coursing through its veins with no more than 30 stocks at an absolute max in the portfolios, makes very little change to its holdings. A turnover rate of 10 percent per annum is low especially in light of the low number of stocks in its funds.
Mr Rolandez freely admits that he was ‘severely impacted’ by Covid-19 and the ensuing lockdowns but rather than panic and try and to reshape portfolios accordingly, he took a philosophical view in a ‘this too shall pass’ fashion.
Rules and the state of play
This year there’s been a louder than average call from the value contingent that now is finally - after well over a decade - their time to shine and Mr Rolandez sees this rotation in play as well.
“I think we are in a transition year where growth is burning itself out because of the high valuations that those stocks have reached and value stocks have started to bounce [back],” says Mr Rolandez.
He adds that Covid impacted both growth and value stocks, although from next year ‘things should go back to normal so there should be less emphasis on growth stocks’, whereas value should still be in demand as long as those names continue to do well.
Mr Rolandez favours EV/EBITDA as a valuation metric but is very strict when he views that a stock is no longer at a reasonable price. Take family-owned luxury goods firm LVMH, home of Louis Vutton and Moet champagne. When this exceeded the predetermined valuation multiple threshold, Mr Rolandez took profit and while he says he’ll continue to monitor the stock to see if it ever reaches his sweet spot again, he concedes that this is unlikely.
He also gives an amusing anecdote for those managers who are always waxing lyrical on the benefits of family-owned businesses (they are incentivised to make good decisions etc).
“Of course everyone speaks about the successful ones [family owned businesses] but no one speaks about the 99 percent which are not doing so well. And so you have a very strong survival bias especially listed on the stock market and that is not at all the discriminating factor,”
His anecdote concerns a time he had lunch with a family run business who he describes as ‘fine people, but perhaps not so driven’.
Other rules Mr Rolandez employs in his funds is that he will not have stocks that are directly competing with each other. This makes sense and may have somewhat insulated the firm from at least some of the impact of the pandemic. The rule lessons concentration risk whereby if a particular sector is hit which a fund has gone particularly overweight in, then the consequences can be dire.
Japan versus Europe
Japan is a market that Mr Rolandez knows well having spent five years there working as an analyst. His views Japan in contrast to Europe (another major market for the firm) which leads to some interesting observations.
He says that the Nikkei is relatively cheap on a global basis and while it has some overpriced growth stocks, this is not at the level of Europe. He summarises Japan as ‘a very efficient market’ which is ‘adequately priced’.
A lot has been said about Japan’s poor history of corporate governance due to customs such as keiretsu, a form of circular ownership that rewarded bad decision making. While for some, the jury is still out on how far Japan has come in its corporate reforms, Mr Rolandez is unwavering in his praise.
“I was in Japan between 1998 and 2003. And that was at that time Japan’s corporate governance and financial management were improving and 20 years later they have improved quite dramatically,” he says before adding, somewhat cryptically, that ‘of course there is an intrinsic Japaness to management’.
Clients of LT Funds tend to be diversified with 88 percent of the firm’s assets held by either professional or institutional investors. Mr Rolandez says he has around 95 clients who are pension funds, insurance companies or family offices. However, he adds that he doesn’t have any private banking clients although has some high net worth individuals which represent around 13 percent of the assets. Clients come from across Europe, including key fund hubs such as Luxembourg, France and Switzerland with ‘a little bit’ in the UK.
For a Swiss firm started by a single man with limited resources, it has grown to a firm with £359.3 million in assets under management and offices in both Switzerland and Japan. By sticking to a simple buy and hold formula, the firm seems to have attracted the sticky money that some large firms with a greater retail focus can only dream of.
