Muted month prior to US election outcome


Fund Commentary
18 Nov 2016


Despite numerous macro news releases during the month, October turned out to be quite uneventful in terms of performance. The Fund’s benchmark posted a slight contraction of -0.51%, pushing year to date decline to -5.30%. In that context, the Fund declined marginally by 0.26% and, thus, outperformed its benchmark by 0.25% for the month. Year to date performance stands at +6.73%, translating into a 12.03% outperformance since 1st January.

Lisi was the most significant contributor, followed, this month, by Somfy and Saf-Holland. At the other end of the spectrum, Tarkett, Norma and Cancom were the three main detractors. During the month, the Investment Adviser added four new positions to the Fund: SFS (Switzerland), Aalberts (Netherlands), Interpump (Italy) and Somfy (France).

Similar to the other positions in the Fund, those four companies share common features: strong management teams, defendable market shares and pricing power, sound balance sheets and significant free cash flow generation.

One of them, Somfy, was immediately one of this month’s top contributors. This family controlled company is the European leader with 60% of the automated shutters segment and more generally, is a major player in motors and opening and closing automated control for residential and industrial buildings. One of the group’s strengths is that it has successfully developed a dense distribution network of installers and specialist stores. Somfy has a limited free float (20%) and is barely covered by sell side research despite a €2.8bn market cap. Its balance sheet is extremely sound (net cash position) and operating margins are healthy (15%+) reflecting the company’s market share, pricing power and innovation capabilities. During the month, the Investment Adviser decided to initiate a position by participating in a share placement at a sizeable discount to the market price. The entry price was valuing the company at a reasonable 10x 2017 EBIT and 7% free cash flow yield.

For the remainder of the year, several important events could potentially impact financial markets going forward: the US elections, the Federal Reserve decision at the December meeting, the Italian referendum and the implementation of Brexit to name a few. As always, the Investment Adviser will try to benefit from the volatility created by surrounding uncertainties bearing in mind that, as demonstrated by the positive year to date performance, capital preservation will remain paramount in the investment process deployed by the Investment Adviser.


The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 8/11/16 and are based on internal research and modelling.