With all that is happening in Europe and globally, it can be very helpful to get an outlook from an investor who thinks not only about the macro picture, but also focuses intensely on the micro picture, seeking to uncover opportunities to invest when others want—or need—to get out of a sector, region or company.
Such is the case with a disciple of the legendary value investor Michael Price and the late Swedish billionaire Jan Stenbeck, David Marcus (left) co-founder, CEO and CIO of Evermore Global Advisors.
Stenbeck, who mounted an America’s Cup challenge, according to The New York Times, “seeded” Marcus' hedge fund, Marcstone Capital Management, LP, (no relation to Markstone Capital Group) with “$100 million,” Marcus told AdvisorOne. (Stenbeck's "Victory Challenge" America's Cup racers are below.)
Marcus closed Marcstone after Stenbeck passed away in 2002. After co-founding Stenbeck’s family office, Marcus founded and was managing partner of MarCap Investors LP, managing a European “small-cap special situations fund,” from 2004 to 2009.
Marcus is now head portfolio manager of two mutual funds he started on Dec. 31, 2009, the "go anywhere" Evermore Global Value Fund (EVGBX) and Evermore European Value Fund (EVEAX). Jae Chung is co-portfolio manager of those funds.
Class A shares of Global Value (without sales charge) returned 17.59% for the one-year period ended Feb. 28; with the maximum sales charge, they returned 11.73%, versus the benchmark MSCI All Country World Index, which was up 21.54%
Class A shares of the European Fund (without sales charge) returned 9.00% for the one-year period ended Feb. 28; with the maximum sales charge, they returned 3.60%, versus the benchmark MSCI Daily Return Net Europe Index, which was up 14.83%
Both funds search for equities that are “undervalued and that have catalysts for significant positive change,” including changes in management or “restructurings, spin-offs, downsizing, recapitalizations, mergers, acquisitions, industry consolidation.”
Taking an “opportunistic” approach to value investing, and always looking for a “catalyst,” Marcus keeps some cash on hand for times when everyone else is under pressure to sell, and then will selectively pounce. He spoke by telephone with Kate McBride on Wednesday.
Q: Why don't we start with an overview of the lively situation in Europe?
A: Yes, I’ve been investing in Europe for almost 20 years—there’s always something going on somewhere in Europe. In the midst of crises we often get our best opportunities. It doesn’t mean buying those stocks that day, [but when] people are selling [because they have to.]
Q: Not to catch a falling knife but find good opportunity?
A: When the vortex started pulling the markets down people started dumping European stocks—in a panic people retreat home to America. But we’re the opposite—we buy when people panic.
Q: You need the stomach to sit it out?
A: Buy in not at the bottom but on the way to the bottom; when rational thinking comes back—[things bounce back]; we’ve gotten [our] best opportunities that way.
Q: Like the U.S. in March 2009?
A: Yes! In March 2009 it looked like the end of the world, end of Wall Street. [That worked out for] those that had the gumption to move forward, not buying everything in sight but [selectively].
When the crisis hit Greece, stocks were down and we got to add a host of individual companies in sectors—companies that were not affected by the crisis when there was selling to raise cash.
Q: Not to Hell in a hand basket, but opportunity?
A: Now—last week all the markets got hit, we said ‘Let’s nibble.’ We make the distinction between nibbling and gobbling. [Nibbling meaning using some our cash; gobbling meaning using much of it.] We don’t know if the markets will be lower, so we nibble so we can come back another day. We have 16% cash in the European fund, and 18% cash in the Global fund.
We started a new position in Germanybecause a couple of stocks were down 12% in one day—a media company, Highlight Communications—they have the rights to the UEFA Champion’s League soccer. Why was it down? People wanted to raise cash. We were waiting, waiting, bought. Within two trading days the stock had recovered all the loss. We always have dry powder—because you never know when a crisis is going to come—be prepared to buy. It’s a lesson from Michael Price.
We are focused on value and opportunity—and keep a cash cushion—dry powder. It’s critical to look at value with catalysts. We are not buying cheap for cheap’s sake. We want to know [what is going on in the company] restructuring, turnaround, new management.
Q: Michael Price was a mentor?
A: I worked for Michael Price—starting in 1987 as a co-op student. I answered phones, hooked up a satellite dish. I learned everything from him. He gave me a chance as a research analyst. [After Price sold Mutual Shares to Franklin Resources in 1996 (now Franklin Templeton), Marcus stayed with the new firm until 2000.]
I started a hedge fund with Jan Stenbeck, a Swedish billionaire and founder of Vodafone and other businesses. [With Stenbeck] I sat in on boards, restructured companies; I bring that to the table now.
Q: Getting back to Europe…
A: Germany is generally driving the train. Germany will defend Europe and the Euro, will pump in as much capital as necessary. Don’t believe Europe is going to go away.
We are bottom-up investors, find situations that are interesting, so we focus on the micro—but we [look at] macro events—taxes, the political situation—for what could go wrong and factor that into the valuation. How wrong can we be and it still works? It’s how we get a cushion—a margin of safety.
We keep the number of companies low, there are 35 in the Global fund today, and 21 in the European fund. We don’t want hundreds of names, we want to know companies really well; we want ‘A’ names—[there’s] a compelling, opportunistic set there. If we have to go to ‘B’ names, I’d rather have the cash. Cash is one of the greatest things we can own—it’s not going down by sitting in the portfolio. [So if it’s not an ‘A’ opportunity, I’m] not going to trade my precious cash.