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Funds in focus: Marc Possa's SaraSelect

Citywire Switzerland looks into the top bets and analyses the performance of the leading Swiss equity manager.

Swiss equity is a very concentrated space with small players often generating the best results in terms of performance. In order to outperform the average, the fund managers have to be able to find hidden champions and look beyond blue-chip names in the SMI.

Citywire AA-rated Marc Possa has demonstrated stellar results in the Swiss equity sector with his SaraSelect fund.

Possa is currently working at VV Vermögensverwaltung, where he joined as a partner in September 2009.

Prior to that he was working at ZKB, where he specialised in proprietary strategic participants. He has also worked for Credit Suisse, Deutsche Bank and Lombard Odier.

Over the coming slides we will dive into the fund's performance, sector allocation and the fund manager's outlook.

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AUM: CHF553.3 million

Launch date: 1 February 1996

Fund manager: Marc Possa

Performance over the past three years: 52.7%

Citywire-assigned benchmark: Swiss Performance Index Small & Mid TR

Citywire tracks 35 fund managers in the Equity-Switzerland Small & Medium companies sector, with 21 of them holding Citywire ratings at the moment.

Over the past three years, AA-rated Possa has returned 52.7% in Swiss franc terms to the end of February 2017, against the average fund manager who returned 38.1% over the same period.

The fund manager received his first Citywire rating in April 2012. That year he was A-rated the longest, holding it from April to July.

The fund currently outperforms its Citywire-assigned benchmark, Swiss Performance Index Small & Mid TR, which returned 38.48% over the three years to the end of February 2017.

In terms of performance SaraSelect takes second place over the past three years in the sector and is number nine over the past five years.

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Top positions

Bossard 8.93%

Also 8.60%

Lem 6.88%

Bobst 6.53%

Daetwyler Holding 6.08%

Possa's portfolio is very concentrated, with the top 10 positions taking up 40% of the portfolio.

Possa said all five of the biggest companies are dominated by strong anchor shareholders, families that have led them through many storms in a responsible way.

‘The entrepreneurial culture in these names is very strong. There is a partnership between employees, the owners and the management and because of that there is much less turnover in personal. CEOs on average stay much longer, with all the positive implications that has on the strategy, the stability and the profitability.’

The biggest holding is Bossard, a fastener technology and logistics company, which has Tesla and John Deere as clients.

‘Thanks to its innovation culture, the company is able to fulfill Tesla’s needs for innovative solutions in order to fix carbon parts of the car body.’

When it comes to Bobst the fund manager says the company is a good example of the transformation of a formerly management-driven company into an entrepreneur-driven one.

'The arrival of Jean-Pascal Bobst as a new CEO about 6 years ago lead to a stringent implementation of lean management tools and resulted in lower capital deployment rates.'

He added that the company's digital solutions will bear fruit in the coming years. Possa said these developments would never have taken place if the firm was owned by short-term oriented financial investors.

Speaking about Daetwyler the fund manager said it is the only company, which was able to master the production and application of the silicon joints for the Nespresso cap system.

'Thanks to its know-how in materials, processes and automation, Daetwyler is a major supplier to the auto industry, enjoys a healthy number two position in pharma packaging and is always looking for new ways to apply their solutions.'

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Top sectors

Industrials 62.9%

Technology 16.2%

Consumer Goods 6.1%

Healthcare 5.6%

Possa is overweight industrials and says Swiss players are attractive thanks to their reliability, value and the fact that they strive for innovation have higher margins and better growth rates than others.One example of the hidden champions he names is EMS Chemie.

'It is led and owned by Magdalena Martullo, the daughter of the former federal councilor Christoph Blocher, who took over EMS in the 80s. Thanks to the willingness to focus, be innovative and some kind of restlessness the company has always found ways to outgrow the market, to have much better margins than bigger competitors (EBIT margin is currently at 27.6%) vs sector peers which are around 15%.'

Elsewhere the fund manager is underweight financials. Possa said one of the most important tasks in investing is evaluation business models applying Michael Porter's model and understanding the protection of companies against a changing environment. He added that for a long time the entry barriers in financials were non-existent.

'It was for a very long time pretty easy to open up a bank, that resulted in a massive overbanked environment. I prefer sectors with a strong, almost natural protection of the incumbents.'

In addition the fund manager finds the management approach of many financial companies not convincing.

'As an outside investor you bear the whole downside when things go wrong, while the upside is very limited, because of management participation (boni) and taxes.'

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Possa has a long-term investment outlook, which usually ranges from five to seven years. He said resistance to higher interest rates is very limited and there is too much debt in the global system, therefore interest rates won’t increase significantly.

‘That said, the equity market multiple expansions will continue. The US has already seen some good advances, but Europe and Switzerland are still enjoying a nice catch-up potential.’

He added that in Switzerland the risk premium is still at an undemanding 6.3%, which is far too high compared to the historic average of 3.2%.

‘Since we see some good improvements of many leading indicators, for example PMIs, cyclical stocks or sectors should do better than long-duration defensive stocks/sectors.’

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Marc Possa
Marc Possa
1/28 in Equity - Switzerland Small & Medium Companies (Performance over 3 years) Average Total Return: 87.14%
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