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A-rated GAM manager reveals his value playbook

Hans Ulrich Jost dives into the detail on how he's generating alpha.

Citywire A-rated Hans Ulrich Jost manages GAM's Euroland Value fund, which has achieved returns of 32.4% over the past three years to the end of June 2018. 

He told Citywire Switzerland the secret behind his strategy, and why he puts a firm emphasis on valuation. 

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Citywire A-rated Hans Ulrich Jost manages GAM's Euroland Value fund, which has achieved returns of 32.4% over the past three years to the end of June 2018. 

He told Citywire Switzerland the secret behind his strategy, and why he puts a firm emphasis on valuation. 

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Vying for value

In part, Jost credits the fund's performance to paying attention to valuations.

'We have a process which is completely valuation based. For example, before consumer stocks in Spain imploded in 2007, we would not have bought Inditex. It was too expensive. But then the stock collapsed, so we bought. That's something you get every five years – the chance to buy a growth stock at a value valuation. The industry weightings we have are purely the sum of the attractive ideas we can find in the market,' he said.

'Last year, we beat all the main players that everyone knows and has in their portfolio. How is that possible? Because the market keeps mispricing certain segments, industries and companies, and no one looks at valuations.'

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Looking to the past

Another key part of his strategy is analyzing history, Jost said. However, he emphasised the importance of reading original source documents. 

'Because of the pro-cyclicality of the industry, sell-side analysts are the major feeders of investment ideas. Sell-side analysts feed buy-side analysts, which in turn feed the fund managers. The vast majority of market players make their decisions on the basis of this summarised pro-cyclical analysis. That's the very reason they cannot deliver alpha in the long run.

'We are entirely valuation driven. We analyse history, meet with companies on a six-monthly basis, and everything we read is original source documents: cash flow statements, PNLs and quarterly statements.' 

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Banks over growth stocks

Jost also noted that the growth stocks that so many investors are married to – such as Nestle – may not be as attractive as they seem.

Instead, he prefers to go for banks.

'Banks are paying you the highest ever dividend yields on the lowest payout ratios versus the market, based on a payout ratio of between 45% and 50% from their earnings. The Nestlés of this world, the so-called growth stocks, which mostly stopped growing some years ago, are paying out 75% of their free cash flow to sustain their meagre dividend yields. Which would you rather buy?'

Jost also said that rising commodity prices and higher employment rates are expected to have a positive effect on value stocks, pushing inflation upwards.

He said: 'The combination of inflation going up, rising commodity prices, the return of pricing power driving PPIs higher and interest rates normalising are the key drivers for value's outperformance.'

In terms of risk, Jost said he's keeping his eye on political turmoil around the world. 

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Hans Ulrich Jost
Hans Ulrich Jost
1/85 in Equity - Eurozone (Performance over 3 years) Average Total Return: 54.39%