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Odey Asset Management manages $4.9bn on behalf of institutions, private banks and family offices, across global, European, and Emerging Market strategies. Founded in 1991 by Crispin Odey and synonymous with independent thinking, strong alignment, analytical rigour and differentiated returns, the investment boutique is home to some of the industry’s leading talent.
Alongside but independent of Crispin, the firm has another six multi-award winning fund management teams, James Hanbury and Jamie Grimston (Absolute Return), Oliver Kelton (European Equity), Peter Martin (Multi-Asset), Geoffrey Marson (Multi-Asset), Sophia Whitbread and Mathieu Rachmaninoff (Global Emerging Markets), and Adrian Courtenay (Event Driven). With inflationary pressures forcing an inflection in the extreme monetary environment of the last decade – and with an alarming number of industry practitioners wholly unproven in managing client portfolios in a higher inflation world – the firm’s philosophy of thinking and investing like an owner, and experience of managing client money in different market environments, feels as relevant as ever.
Crispin Odey (CO): The only rule that I set myself thirty-odd years ago was that I wouldn’t run other people’s money in any way differently to how I run my own. Unlike many other investors, who see volatility as loss, I see adverse movements in assets after I have taken a position as an opportunity to improve the returns. In my view, this sets me apart from most other investors and has meant that ultimately most of the money that I run is my own.
CO: Once interest rates started to turn higher, even if in real terms they were much lower than before, all fund managers breathed a sigh of relief. There are now many ways in which investors can find attractive yielding assets. Passive investing has undoubtedly won the day. Diversification and low costs were just too attractive. Coming at a time when zero interest rates favoured long-duration (growth) stocks, the effect was painful for value stocks. Value stocks were the worst sufferers from this trend. Poor performance in this sector was compounded by switching into passive indexes as well as not being offset sufficiently by any equity flows into those indexes. Finally, companies have realised that their salvation lies in building profits and combining share buybacks with dividends. If it sounds old-fashioned, don’t be surprised that it feels that way. It is very different from 2003. In the UK there was no LDI in 2003. Pension funds in the UK had 80% of the portfolio in equities and 60% was in UK equities. Today they have 17% in equities, of which around 4% is in the UK market. We have seen a catastrophic decline in the biodiversity of stock markets. Especially in the UK market.
The only rule that I set myself thirty-odd years ago was that I wouldn’t run other people’s money in any way differently to how I run my own. Unlike many other investors, who see volatility as loss, I see adverse movements in assets after I have taken a position as an opportunity to improve the returns.
Crispin Odey, Founder and Portfolio Manager
CO: Decline is always marked by rising taxation, rising regulation, ever weaker growth rates, and inflation coming from the government printing money to feed itself. Individuals should work out their own salvation. In these times, spot tax-exempt assets that offer good returns. Be mindful that history suggests governments at some point introduce exchange controls to stop savings from fleeing. Offshore funds should have a big place in people’s thinking.
Oliver Kelton (OK): The policies behind decarbonising energy, including the recent US ‘Inflation Reduction Act’ or European ‘Green Deal Industrial Plan’, are symbolic of many of these issues, and the investment difficulties that lie ahead. Who would have imagined that Europe’s leading wind turbine manufacturers, Vestas and Siemens Gamesa, would have both had substantial operating losses in 2022.
James Hanbury (JH): When looking to invest in a business we want to feel we have a good understanding of the business and the industry. We like businesses that have decent barriers to entry and, crucially, management teams that are allocating capital in value-accretive ways. Although the latter point seems obvious, management teams who behave like owners are in the minority in public markets. We, therefore, have a bias toward first-generation owner-managed businesses, as decision-making in these companies tends to be optimised for the long term given alignment. There is a high concentration in a distinct set of top positions, some of which have been held for over a decade. Our highly experienced research team provides us with a notable and extensive depth of understanding of these positions. At a geographical level, the funds look very different to global peers; typically underweight/net short the US while overweight/net long Europe and the UK. The funds’ longs tend to have significantly lower median earnings and sales multiples than both the market and the short book.
OK: In many ways these factors make investing in European equities even more challenging. However, at the same time this current backdrop brings with it distinct investment opportunities, where the rewards are increasingly exciting. We have been focused for many years on the misallocation of capital emanating from prolonged extreme monetary policy in Europe and as the cost of capital has begun to normalise, the funds have continued to deliver compelling long-term returns. With still near historical low valuations, the Fund continues to be focused on banks, energy, telecoms, and general value investments across Europe.
Meeting management teams is the lifeblood of our research process. We really want to understand the DNA of a business and it is impossible to do this from just the numbers.
James Hanbury, Portfolio Manager
JH: Meeting management teams is the lifeblood of our research process. We really want to understand the DNA of a business and it is impossible to do this from just the numbers. The fact that the sell side capacity has been so reduced in the past few years has, along with the growth of passives, helped make the market more inefficient, which creates more opportunities for stock pickers who are prepared to take a longer-term time horizon and get into the weeds.
OK: As brokerage commission rates have collapsed over the last 20 years, naturally so too has the quality of research available to investors from the sell side. Fundamental research remains pivotal to our investment approach. Therefore, in this new world, it is an enormous privilege to be able to balance the best of what remains available on the sell side, with external research resources and a highly experienced team of internal equity analysts.
CO: Given that we believe volatility is our friend and the sharp price moves downward are an opportunity to buy more, reliance on our analysts at that moment is key. We need to feel we know a little bit more than the market. Commission rates and fees have fallen so far that the sell side has become less helpful. That means that valuations are cheaper – information is more difficult to come by – but our advantage as an analytical house has grown.
JH: We enjoy working with our analysts enormously. We trained as analysts and continue to engage in the granular detail of research. Our analysts are all proven alpha generators and by working with them we firstly take a belt and braces approach and secondly, we try and push each other to further our understanding, both with regards to the risks and opportunities. A key attribute of the analysts we work with is that they will challenge me; an echo chamber is one of the most dangerous environments in investing.
OK: The analyst team plays an instrumental role in our process. On the one hand, they help drive idea generation, but their real value added is in providing the know-how, experience, information flow, and challenge to our bottom-up fundamental research.
We have been focused for many years on the misallocation of capital emanating from prolonged extreme monetary policy in Europe and as the cost of capital has begun to normalise, the funds have continued to deliver compelling long-term returns.
Oliver Kelton, Portfolio Manager
Sophia Whitbread (SW) and Mathieu Rachmaninoff (MR): Emerging markets and their companies tend to be under-researched relative to their developed market counterparts, with lower relative participation by institutional investors. This allows greater and longer-lasting market inefficiencies for an active manager with strong analytical skill to exploit. Well-researched conviction, combined with a long-term time horizon, allows us to use the volatility of emerging markets in our favour. With the confidence of our analysis, we build positions in companies when sentiment is low, with a time horizon that allows us to harvest the share price appreciation associated with recognition of the longer-term investment cases hidden within shorter-term swings in market mood. Our biggest thematic exposure is to solar energy. Growth in demand for solar energy is highly structural, and long-term, as the world seeks to mitigate the impacts of climate change, while developing greater energy security. Solar is a predominantly Chinese investment opportunity, as the vast majority of capacity for polysilicon wafers, the core component with high barriers to entry, is found in China. This year brings rapid expansion in raw material supply, prompting a major catalyst for demand.
Adrian Courtenay (AC): In our view, the most important variable to effective money management is independent thinking. This is true both in terms of the design of an investment strategy that is operated, but also the day-to-day working method from which the decision-making process is originated. The Odey culture has independence from groupthink at its core, and this can be seen in the way that the funds have produced returns outside of the peer group averages, particularly during market dislocation events, over multiple historical periods.
The Odey Special Situations Fund targets attractive situations across three domains: merger arbitrage, high yield bonds and selected long equity situations. The design rejects leverage, has the freedom to deploy capital across developed markets globally (primarily Europe, the US and Australia), and operates with a mission statement embracing realism, we target protection of capital and a healthy return.
Peter Martin (PM) and Geoff Marson (GM): The Odey Portfolio Fund and Odey Opportunity Fund, managed respectively by Peter Martin and Geoff Marson are the multi-award-winning strategies that are the bedrock of our multi-asset offering within our stable of Odey funds. The Opportunity fund is more suitable for those with defensive balanced risk appetites and goals, while those who look for a more return-seeking strategy should consider the Portfolio fund. With over 67 years’ experience between them managing money for HNW, Charity and Trust clients, they devote considerable time and effort identifying the major themes and trends within financial markets and position their strategies accordingly. QE has fundamentally distorted the cost of capital, so 60/40 managers typically adapted by taking on more risk than they ought to by being overweight speculative tech stocks and going into higher yielding, lower quality corporate bonds, setting themselves up to fail spectacularly as we saw last year when central banks started raising rates, given the correlated nature of their underlying holdings. This is, however, a very good environment for a 60/40 manager – indeed, our strategies were able to continue delivering first-quartile returns as we were able to rotate in and out of growth and value names and switch into energy and material stocks at the end of 2021.
PM and GM: It is clear investors have been wrongfooted by being overweight long-duration assets (such as speculative stocks) going into this inflationary environment. If further evidence was needed, Covid also demonstrated that investors were not typically nimble enough either to manage the value and growth rotations. So, in an inflationary world exhibiting shorter and more volatile economic cycles, we believe that a flexible and dynamic multi-asset strategy can be a winning approach if implemented correctly. Indeed, while bonds have been shunned for more than a decade by many multi-asset managers, we now consider for instance that index-linked bonds are a key part of our toolkit. The market occasionally throws fantastic opportunities at you, such as last year’s disastrous mini-budget, and this again emphasises the importance of selecting investment managers who are nimble enough to back their ideas with the courage of their conviction.
CO: When my investors are pulling most of their money, frightened by the volatility, I am getting excited about the fact that my medium-term view of something hasn’t changed but the entry price has vastly improved. Putting money into my funds when other investors are selling has proven very successful. My own money accounts for over 50% of the funds I manage. My style of investing is proven to be successful, but it will always be rarely copied. It is not how you grow your assets under management, just your own assets.
ODEY GROUP | FUND RETURNS & PEER GROUP RANKINGS
|1 Year||3 Years||5 Years|
|Fund (base currency)||Return %||Quartile||Return %||Quartile||Return %||Quartile|
|Odey European Inc||63.2||1||150.5||1||227.7||1|
|OEI Mac GBP B||68.2||1||129.9||1||249.5||1|
|Odey Swan Fund||37.8||1||52.3||1||88.1||1|
|Odey Pan European Fund||-6.1||4||51.7||2||17.0||3|
|LF Odey Opus Fund||1.0||1||54.9||2||42.9||3|
|LF Brook Absolute Return Fund||27.2||1||108.5||1||86.8||1|
|Brook Absolute Return (IRL) Fund||26.4||1||103.2||1||n/a||n/a|
|Brook Absolute Return Focus Fund||46.2||1||155.7||1||129.9||1|
|Brook Developed Markets Fund||-3.6||1||102.8||1||45.5||2|
|LF Brook Continental European Fund||20.2||1||122.1||1||73.4||1|
|Brook European Focus Fund||14.1||1||107.9||1||56.9||1|
|Brook European Focus Absolute Return||15.8||1||58.2||1||47.8||1|
|LF Odey Portfolio Fund||-2.4||1||27.7||3||14.3||4|
|Odey Opportunity Fund||-2.0||1||29.8||1||27.2||1|
|Odey Special Situations Fund||-16.5||4||66.6||1||n/a||n/a|
|Sophia Whitbread & Mathieu Rachmaninoff|
|Brook Global Emerging Markets Fund||-9.3||2||n/a||n/a||n/a||n/a|
Past performance does not guarantee future results and the value of all investments and the income derived therefrom can decrease as well as increase.
Note: Performance is net of fees and other charges and includes the reinvestment of dividends using the fund master share class. Investments that have an exposure to currencies other than the base currency of the fund may be subject to exchange rate fluctuations. Returns are cumulative. Source: Odey unaudited internal data and Morningstar as at 31-Mar-23.
The value of investments may fall as well as rise, you may get back less than invested.
No investment should be made in one of these products without careful consideration of the Prospectus for the Funds and the Key Investor Information Document for the relevant Sub-Fund, each available at odey.com and brookam.com or from your contact at Odey Asset Management LLP (Odey).
This document is a marketing communication issued by Odey Asset Management LLP. Brook Asset Management is a trading name of Odey. This document does not constitute an offer or a solicitation to buy or to sell any security, product or service in any jurisdiction; nor is it intended to provide investment, financial, legal, accounting, tax, or other advice and such information should not be relied or acted upon for providing such advice. This document is not available for distribution to investors in jurisdictions where such distribution would be prohibited.
The document is intended for “professional clients”, "retail clients" and “eligible counterparties” (as defined by the FCA handbook of rules and guidance) only and should not be relied upon by any other category of customer.
Odey reserves the right at any time and without notice to change, amend or cease publication of this information.
Past performance is not indicative of future results.
With all investments there is a risk of loss of all or a portion of the amount invested. Where return estimates are shown, these are provided for illustrative purposes only and should not be construed as a prediction of returns; actual returns may be higher or lower than those shown and may vary substantially, especially over shorter time periods. It is not possible to invest directly in an index.
Some of the statements contained in this document may be considered forward-looking statements, which provide current expectations or forecasts of future results or events. Forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Do not place undue reliance on these statements because actual results or events may differ materially from those described in such forward-looking statements as a result of various factors. Before making any investment decisions, we encourage you to consider all relevant factors carefully.
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