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Cobas Funds Commentary: Trust and Belief

In 2019, we welcomed 2,528 new unitholders and ended the year with over 2 billion euros under management.

2020 sees the three-year anniversary of the launch of our management company. The 4th Annual Investors' Conference recently took place in Madrid and Barcelona.

Thank you for your trust. That is the first message we want to convey to all our investors on behalf of the Cobas Asset Management team.


The second, but no less important message, is the strong belief we hold in our investment decisions, based on the in-depth expertise we have gained in our portfolios over the last 3 years of investing in essentially the same companies. This belief and expertise make us very optimistic about the future.

The goal of this piece is to convey, to the more than 1,300 investors who attended, the 6,000 who followed us online and in general to all Cobas investors, the news and key points that were discussed in both conferences.

Over the course of 2019, we have welcomed 2,528 new unitholders, who are now part of the more than 28,545 investors who have invested their money and their trust in Cobas Asset Management.

We ended the year with over 2 billion euros under management, with noteworthy net entries in the year of more than 15 million euros, across our entire range of products.

As can be seen in the following table, last year in 2019 our international portfolio posted returns of 13.4% and the Iberian portfolio 6.6%. From the start to the close of 2019, our investment funds and pension plans accumulated negative returns.

One development in terms of new products offered by our management company was the launch of two EPSVs): Surnepension Cobas 100 and Surnepension Cobas 50-50. These investment vehicles are private non-profit entities that target to provide complementary social insurance as a supplement to mandatory Social Security within the scope of the Basque Country.

Two new funds were also launched in the last quarter of 2019 under the umbrella of Cobas Lux SICAV. These are Cobas Iberian Fund and Cobas Large Cap Fund, which replicate the investment strategy of their Spanish counterpart funds.

Delving further into the issues that were discussed at the annual conference in relation to investment portfolios, we should highlight the following details:

Our international portfolio has a PER of 6.6 and an upside potential of 126%, while the Iberian portfolio has a PER of 8.4 and an upside potential of 84%.

Our international portfolio mainly consists of the following blocks:

It should be mentioned that the portfolio continues to be highly stable, thanks to the depth of conviction and breadth of expertise we have in the companies. These are also businesses that mostly generate positive cash flows and more than 50% of the companies pursue a defensive strategy.

With regard to the Iberian portfolio, the main investment blocks are:

We remain convinced of the main positions we have been investing in over these three years, and it is worth highlighting that 88% of the Spanish and Portuguese companies we invest in have a controlling shareholder.

Perhaps the most interesting point, and the one that drew most interest from our investors, was the explanation the team offered on how the target price is reached. Or in other words, how the gap is closed between our valuation of a company and its quoted market price.

To do this, it is important to reinforce the following basic concepts:

  1. The passage of time entails the generation of profit by the companies, and if the price does not take that into account, value is accumulated t increasing the potential for revaluation on a daily basis.
  2. The larger the unrecognised value and the longer it remains unrecognised, the greater the eventual revaluation will be.
  3. The greater the potential of a share (estimated value vs. price of a share) the more likely it is that someone will recognize its value.



On that basis, how is the value reached?:

  • Over the long term, the market is efficient it always realizes the intrinsic value of an asset.
  • Buyback of shares by companies/owners: Teekay, CIR, GIII, Hoegh, WilhelmsenH. Hyundai Motor, Samsung, Euronav, DHT, OVS, Subsea7, IPCO, Prosegur, Semapa, Repsol, Vocento, Melia.
  • Changes in/simplification of corporate structure (Spin-offs), mergers, help in the recognition of the real value of the assets: Teekay, Golar, CIR, Porsche.
  • Takeover bids: Parques Reunidos, Greene King, Nevsun. The price of the takeover bids is close to our target prices.



Finally, I want to share with you the main conclusions of the conference:

  • We continue to have a high potential for revaluation that will increase over time if not reflected in the price.
  • We have increased the security and certainty of that potential.
  • Our portfolios are uncorrelated with expensive indices.
  • The owners of the companies are highly sensitive to the under-valuation of their companies.



To conclude, all of the above can be summed up by the following statement: Price and value will converge, they always converge.

A family holding company

Elsewhere, and in the interests of greater transparency and promoting all projects, at the Annual Conference we also presented Santa Comba Gestion SL, the parent company of Cobas AM, a project aggregator that promotes personal freedom through knowledge. It is a family holding company with a commitment to society, that supports financial, entrepreneurial and philanthropic projects with a common and cross-cutting ethos: The philosophy of investing in value.

Santa Comba structures, coordinates and unifies these initiatives, multiplying the value of each one of them. It should be noted that 15% of Cobas AM and Cobas Pensiones's revenue goes to impact investment (GSI), education (Value School) and 'venture philanthropy' (Open Value Foundation).

Other interesting developments were discussed at the conference. The two certifications, B Corp and ISO 27001, which were recently obtained by Cobas Asset Management.

Cobas AM has been the first fund manager to obtain the B Corp certification, granted by the B Lab Spain Foundation to companies that meet the highest standards of social and environmental performance, transparency and corporate responsibility.

The ISO 27001 certification, on the other hand, guarantees that an information security management system has been implemented that protects the confidentiality, integrity and availability of the critical information of our unitholders and the business.

In short, obtaining both certifications is a testament to our ongoing efforts to transform in order to operate under the principles of adequate corporate social responsibility and to optimize our internal processes and the protection of our investors' information.

On a final note, I would like to sign off by encouraging you to watch the full conference on our YouTube channel via the following link: https://youtu.be/Zt_2tVD-9jc

If you have any questions or concerns please do not hesitate to contact the Investor Relations team, we will be happy to assist you.

This article first appeared on GuruFocus.