'We buy good companies with good teams' - A Look at the Success and Strategies of Spanish Guru Francisco Garcia Paramés
-Francisco Garcia Paramés
Francisco Garcia Paramés is one of the international gurus followed by GuruFocus. Paramés is the chief investment officer of Bestinver Asset Management in Madrid, Spain. The guru has been called the “Warren Buffett of Spain” and has had a continuously successful career since his beginnings with the market in 1993.
Bestinver Asset Management is an independent Spanish fund manager which was founded in 1987 and is owned by Acciona, a Spanish conglomerate group. The fund currently holds €7.5 billion in assets under management and boasts 37,000 investors. The fund is responsible for seven mutual funds, four pension funds and eight sicavs (an open-ended collective investment funds). Historically Bestinver was controlled by the Entrecanales family of Madrid, and when Paramés began his time at fund. At this time Bestinver invested only in Spain and 90% of the assets managed came from the Entrecanales family. Check out Paramés’ interview with Hedgeweek about Bestinver Asset Management here.
The Spanish guru is a self-taught value investor who follows the leads of Graham, Buffett, Peter Lynch and the likes. While he is primarily a self-educated investor, Paramés has a profound knowledge of the Austrian theory of economic cycles. Parames graduated with an Economics degree from the Universidad Complutense and has a Master’s degree from IESE Business School.
Paramés began working at Bestinver in 1989, where after a short two years as a Spanish stock analyst, he was promoted to managing select portfolios and funds. The guru had a highly successful career in his time as an investment manager (from January 1993 to June 2009) when you look at the returns he obtained by his Spanish equity funds: 17.9% per year, equivalent to an accumulated gain of 1,538%, compared to 464% obtained by the benchmark (IGBM, Madrid Stock Market General Index).
In 1997, Paramés was given the reigns to manage Bestinver Internacional where he took it to its most leading positions in the market of foreign funds sold in Spain, with an accumulated return (from 1998 to 2009) of 196%, or a 9.5% annual average return, in comparison to the MSCI World Index return of -3.1%.
While Francisco Garcia Paramés is considered one of the most successful money managers in Spain, Bestinver recently opened an office in London and as of September 2013 Paramés has been doing his research based out there.
Currently, Francisco Garcia Paramés is the CIO of Bestinver Asset Management as well as the portfolio manager of his flagship fund at Bestinver, Bestinfond. Bestinfond has returned a net annualized 15.7% since its inception in 1993.
Francisco Garcia Paramés on what the fund is:
The core of what we do, investing with a long-term horizon in stocks that are inexpensive relative to their normalized free cash flow, has not changed and most certainly will not change in the future… We have moved more from a pure Benjamin Graham style of value investing to one closer to Phil Fisher and Warren Buffett, in the sense that we’re putting even more weight on the quality of the business.
Over the past 20 years, Paramés and his colleague Alvaro Guzman de Lazaro have managed a consistent return that has beaten the market over extended periods of time. In the past ten years Bestinfond has maintained an annualized return of 21.2% (26.7% in 2006). This successful past moved Bestinver to the 12th highest ranked fund manager in Spain, even in front of Morgan Stanley.
The guru’s accumulated return from 1998 to 2007 was a notable 212%, compared to the 29% held by the world reference index. As a result of this Bestinver was awarded an equity mandate by the Norwegian Government Pension Fund. The fund was the first equities fund to ever receive this honor.
In 2008 Paramés lost money right alongside his peers, but even in his losses he still beat the average manager. This led to his determination to do better the next year, and in 2009 the guru was once again a top performer in his sector.
In the five years surrounding this time (2005 to 2010), the global equity fund that Paramés co-manages with Guzman de Lazaro and Fernando Bernad Marrase, returned 41.6% in euros. At this same time the Bestinfond European equity fund has returned 37.7%.
Bestinver describes its investing philosophy the best on its website: “We believe the most reliable way to obtain an adequate return for our customers is through long term investments in well managed, understandable and undervalued businesses with significant long-term capital upside.”
Paramés is the largest money manager in Spain, with €7.5 billion under management, and he has said many times that “patience is our biggest competitive advantage.” The guru likes to buy family-owned companies, which is significantly more common in Europe than it is in the U.S. Bestinver focuses most of its picks in strong businesses with high free cash flow yield.
From the crash of the market in 2008, Paramés revised several of his investing ideologies and creating a more concentrated portfolio with a more specific emphasis on the quality of the business. Also since the crash, Paramés holds on to more liquidity. Prior to 2008 Paramés said that he did not believe much in holding on to liquidity, but he now maintains 20% to 30% of his portfolio in cash in order to help balance the portfolio in case of another sudden meltdown.
The Spanish guru has also been very vocal with the fact that he is not buying into companies where he would need to utilize his voting power. Paramés thinks that this is a waste of time, since he only invests where he likes the company and what is going on. While Paramés is not an activist investor, he does worry that fund managers are losing contact with the final investor and this is cause for concern for him. The guru has witnessed the increasingly the tendency for investors to take a short-term view on the market, and as a result of this Paramés only accepts investors willing to spend a minimum of five years with him. Paramés discusses his investment philosophies and stock picks in this interview with Estrategias de Inversion here.
Portfolio and Performance Data
Bestinfond has historically maintained a high exposure to small and medium-sized companies, and only recently has opened its arms to large companies that managers have seen interesting opportunities in. The portfolio is heavily concentrated in home companies, with 20% to 40% of the stocks coming from Iberian locations.
From May 2005 to June 2013, the fund has beaten the category average (70% MSCI Europe Small Cap NR and 30% MSCI Spain Small Cap NR). The performance of this fund is heavily influenced by its structural overweight in Spanish and Portuguese companies. The Iberian countries comprise of around 5% to 10% of the European equity indexes compared with around 20% of this fund as of March 2013. As of the end of the second quarter, this has been a strong year for Bestinfond as its long-term relative returns are consistently strong. Check out Morningstar’s analysis of Bestinfond here.
As of the third quarter Paramés’ Bestinfond fund boasts 101 stocks, with two of these stocks being new buys over the past quarter. The portfolio is valued at $1.4 billion and maintains a quarter over quarter turnover ratio of 9%. The following five companies are his five largest stock positions and make up for roughly 30% of his entire holdings.
1. BMW (XTER:BMW3): Paramés holds on to 1,805,821 shares of Germany-based BMW, representing 7.8% of his portfolio. The guru increased his position by 3.12% over the third quarter. Check out more information on Paramés’ holding of BMW here.
2. EXOR SPA (MIL:EXO): Paramés holds on to 3,503,859 shares of Italy-based EXOR Spa, representing 6.9% of his total assets managed and 2.19% of the company’s shares outstanding. Over the past quarter he reduced his position by -15.16%. Check out more information on Paramés’ holding of EXOR Spa here.
3. Wolters Kluwer NV (XAMS:WKL): Paramés holds on to 4,861,349 shares of Netherlands-based Wolters Kluwer, representing 6.6% of his total portfolio as well as 1.64% of the company’s shares outstanding. Over the third quarter he cut his holdings by -1.3%. Check out more info on Paramés holding of Wolters Kluwer here.
4. Thales (XPAR:HO): Paramés holds on to 2,034,896 shares of France-based Thales, representing 5.9% of his total portfolio and 1.01% of the company’s shares outstanding. Over the duration of the third quarter he cut his holdings by -7.1%. Check out more information on Paramés’ holding of Thales here.
5. Wm Morrison Supermarkets (LSE:MRW): Paramés owns 13,997,054 shares of England-based Wm Morrison, representing 3.2% of his total holdings and 0.60% of the company’s shares outstanding. The guru upped his stake in Wm Morrison by 5.61% over the third quarter. Check out more information on his holdings on Wm Morrison here.
The guru’s international portfolio is primarily based in Spain, Portugal, Switzerland and the UK. You can view more about Francisco Garcia Paramés and Bestinfond by going to Paramés’ Guru Trade Page here.
In conclusion, we have a lot to learn from Bestinver’s star fund manager and superstar in the Spanish and Portuguese market. Paramés is unanimously recognized as having introduced value investing to Spain approximately 20 years ago, and his vast portfolio serves as an excellent example for investors who are looking to expand internationally.
Check out Francisco Garcia Paramés’ stock picks here.
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