One day you’re cock of the walk, the next a feather duster – NinetyOne’s John Biccard

One of South Africa’s best-performing fund managers over the past 20 years, John Biccard shares his view on the macroeconomic environment and stock selection within the NinetyOne value fund, which has returned more than 17% per annum over the past two decades. Biccard’s investment philosophy is simple, he targets companies that are out of favour. As a value-oriented manager, he uses a bottom-up, fundamental approach to take advantage of opportunities. Biccard is concerned about general global valuations and has positioned the fund accordingly, taking positions in more defensive counters. Some of the value fund’s largest counters, including AngloGold Ashanti, Tiger Brands, Brait and Spar are discussed at length as investment propositions. Biccard’s reputation as a fund manager is unparalleled given his immense outperformance since the beginning of the millennium and his decision-making and investment philosophy is truly unique, which makes for an interesting conversation. – Justin Rowe-Roberts

John Biccard on his investment philosophy

We’ve had the same investment philosophy over the full 21 years and it’s to buy out-of-favour, deep-value stocks that the market is ignoring and taking a longer three- or four-year view. To not worry about what the next quarter’s earnings are, but rather what the fundamental earnings power of the business is, what the correct rating of the business is, and to look through the short-term noise. That means we are often a number of years early. We look and say: what can this company earn in a normal cycle and what sort of rating should it command through the cycle. That way we get a fair value. If the share is well away from that, we buy it irrespective of what is happening now. A very important thing is we spend a lot of time on the balance sheet to make sure that while we wait for things to change to unlock this value, the company doesn’t go bust because value investing is hard enough without having to do it before the companies go bust. So, that is what we’ve done. It means generally, we are always swimming against the tide; we buy when others are selling and sell when others are buying. The long-term returns are the best in the industry. But on the three-year view, we often can come last because we are building long term and we want investors to give us the money on a three- to five-year view. In exchange for the short-term pain we give you, we give you better long-term returns. The last thing I’d say; it’s not because we work harder or because we’re smarter than the rest of the market, it’s because you need to be compensated for the discomfort in the short term of being out of favour. So, you should make extra returns and you do. I have never understood why investors wouldn’t take that trade-off, you know, some discomfort in the short term for more gains in the long term.

On generating more than 17% per annum over two decades

The first 10 years were really good. I mean, it was unparalleled and the next 10 years was alright. Basically, the 20 years is divided into the first 10 years when value outperformed growth and the next 10 years when value underperformed growth … substantially underperformed. I don’t have to tell you how growth, tech and quality stocks have dominated over the last 10 years. It’s good to know that the 20-year history has had 10 years of tailwinds and 10 years of headwinds. We are still well ahead of the benchmark and all competitors, which shows you do get compensated. I would argue now we are going back into a period where we’re going to see tailwinds. The performance has been very evenly split between growth and value and yet we still managed to show that 4% alpha (return in excess of the benchmark). It shows that it works even in down cycles but obviously we prefer up cycles.

On making rational decisions when the market is against you

I often find it easier when it’s not going our way because we just keep buying the really cheap shares. The times I get the most stressed is when things are going well for our stocks because it means we have to sell and find other opportunities. It is much harder to decide exactly which level to sell and then you have to do all the work to find another group of stocks or another stock to replace, you know, what’s reached fair value. It is kind of easier when you know what you want to buy, and the share just keeps falling and you just keep buying it in a funny sort of perverse way. That period is often easier for us. But the key thing is to do the work beforehand, to make sure you’ve got a concrete, fair value. Then, the most important thing is to stick to your belief, even if it takes three or four years for it to come through.

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