January Commentary
25.02.2021 16:33 - GAMCO International SICAV
Many U.S. stock market benchmarks rallied to record highs during the first three weeks of January then dropped sharply at month end as the GameStop short squeeze (Tulip Mania 1636/7) dynamics unnerved investors. U.S. stocks closed mixed for the month as the annual 2020 earnings season got off to a good start.
Love Our Planet and People (LOPP:NYSE), our new actively traded non-transparent ETF for the decade of the 20s, is based on saving Planet Earth, helping people and creating the potential for saving the planet, and by focusing on the impact of climate change as well as on reducing/recycling plastic and on innovative companies that are developing new and sustainable solutions to carbon reduction.
Renewables, including wind, solar, battery storage and building infrastructure for transmission are the areas we want represented by some portfolio companies. The entire environmental ecosystem is receiving increasing investor focus.
One of the Gabelli stock ‘picks’ mentioned in BARRON’s 2021 Roundtable Part 2, published in the January 25 issue, that is directly impacting climate change is the Connecticut based sustainable energy company, Avangrid Inc. (AGR:NYSE), an energy and utility company, and a love-the-planet play. Spanish utility Iberdrola (IBE SM-Madrid), owns 260 million shares. Avangrid announced in October that it plans to acquire PNM Resources (PNM:NYSE). Iberdrola understands the renewables world and is well positioned in the U.S. Our equity research concludes the company could spinout a portion of Avangrid's renewables business as a yield, similar to NextEra Energy's (NEE:NYSE) spinout of NextEra Energy Partners (NEP:NYSE), and thereby create a higher valuation. The PNM deal will add significantly to Avangrid's revenue and EBITDA, and investors will get a solid dividend with a current yield of around 3.80%.
In the world of merger arbitrage, dealmaking momentum carried into the new year, with global deal activity increasing 38% year-over-year to $300 billion.
Finally, the global convertible market followed up on a remarkable year with another strong month in January. The primary market was quite active as $12.6bn was offered globally. This new issuance performed well, despite some aggressive pricing. We expect this to continue through the year as companies can raise capital at attractive terms.
With 10 year US treasuries moving higher we are starting to hear from some investors concerned about how convertibles will act in a rising rate environment. Historically convertibles are driven more by underlying equity performance than interest rates and we anticipate this will be the case this time as well. With duration at all-time lows, there are only a few select convertibles that may be significantly impacted by rising rates. For example, since August 10 year rates are up 60 bps, however convertibles are up 31%, driven by underlying equity performance of 38%.
Overall, the investment team is enthusiastic about the prospects for further gains within convertibles while “staying” invested in equities with the benefit of asymmetric risk exposure. When equity volatility increases, convertibles’ yield advantage, maturity, and position in the capital structure help them to outperform.
To access our investment methodology and dedicated merger arbitrage portfolio, we offer the following UCITS funds in each discipline:
Gamco Merger Arbitration
GAMCO Merger Arbitrage UCITS Fund, launched in October 2011, is an open fund incorporated in Luxembourg and compliant with UCITS regulation. The team, dedicated strategy and registration date back to 1985. The goal of the GAMCO Merger Arbitration Fund is to achieve long-term capital growth by investing primarily in announced M&A transactions while maintaining a diversified portfolio. The Fund uses a highly specialized investment approach designed primarily to benefit from the successful completion of mergers, acquisitions, public offerings, leveraged acquisitions and other types of proposed corporate reorganizations. Continuously analyzes and monitors each pending transaction for potential risks, including: regulations, terms,
Merger investments are a highly liquid alternative, uncorrelated to the market, proven and consistent with traditional equity and fixed income securities. Merger returns depend on bid spreads. Bid spreads are a function of time, the transaction risk premium, and interest rates. Therefore, returns are correlated with changes in interest rates in the medium term and not with the stock market in general. The prospect of higher rates would imply higher return on mergers as spreads widen to compensate arbitrageurs. As bond markets decline (interest rates rise),
Broad market volatility can lead to widening spreads on merger positions, which, together with our well-documented merger portfolios, offer the potential for enhanced IRRs. Daily fluctuations in price volatility coupled with less proprietary capital (Volcker's rule) in the United States have contributed to improving merger spreads and thus overall returns. Therefore, our fund is well positioned as a replacement for cash or fixed income.
Our goals are to accumulate and preserve wealth over time, while remaining correlated with broad global markets. We created our first dedicated merger fund 32 years ago. Since then, our merger performance has grown client assets at an annual rate of approximately 10.7% gross and 7.6% net since 1985. We currently manage assets on behalf of institutional and global high-net-worth clients in a variety of funding structures and mandates.
Gamco all cap value
The UCITS GAMCO All Cap Value Fund, launched in May 2015, uses Gabelli's proprietary PMV with a Catalyst ™ investment methodology, in operation since 1977. The Fund seeks absolute returns through event-driven equity investing. Our methodology is focused on investing with a fundamental and well-researched approach to realizing the best opportunities, with a focus on asset values, cash flows and identifiable catalysts to maximize returns regardless of market direction. The fund draws on the expertise of its global portfolio team and more than 35 value analysts.
GAMCO is an active bottom-up equity investor seeking to achieve real capital appreciation (relative to inflation) over the long term, regardless of market cycles. Our value-oriented stock selection process is based on fundamental investment principles articulated in 1934 by Graham and Dodd, the founders of modern analysis, and augmented by Mario Gabelli in 1977 with his introduction of the concepts of Private Market Value (PMV). ) with a Catalyst ™ in Equity Analysis. PMV with Catalyst ™ is our unique research methodology that focuses on selecting individual stocks by identifying companies that are selling below intrinsic value with a reasonable probability of performing their PMV,
Fundamental Valuation Factors is used to evaluate securities before inclusion / exclusion in the portfolio, our research-driven approach considers fundamental analysis as a three-pronged approach: free cash flow (earnings before interest, taxes , depreciation and amortization, or EBITDA, less capital expenditures necessary to grow / maintain the business); earnings per share trends; and the private market value (PMV), which includes assets and liabilities on and off the balance sheet. Our team arrives at a PMV assessment through a rigorous evaluation of the fundamentals of the information available to the public and the judgment obtained from the management of meetings, spanning companies of all sizes globally and our extensive accumulated knowledge from a variety of industries. We then identify deals for the portfolio with an adequate margin of safety and supported by our in-depth research.
GAMCO CONVERTIBLE SECURITIES
The goal of GAMCO Convertible Securities is to achieve current income and long-term capital appreciation through a total return strategy, investing in a diversified portfolio of global convertible securities.
The Fund builds on the company's history of investing in dedicated convertible portfolios since 1979.
The fund invests in convertible securities, as well as other instruments with economic characteristics similar to those of these securities, in all world markets (although the fund does not invest in contingent convertible bonds). The fund may invest in securities of any market capitalization or credit quality, including up to 100% in unrated or sub-investment quality securities and may from time to time invest a significant amount of its assets in securities of larger companies. little. Convertible securities can include any suitable convertible instrument, such as convertible bonds, convertible bonds, or convertible preference shares.
By actively managing the fund and investing in convertible securities, the investment manager seeks the opportunity to participate in the capital appreciation of the underlying assets, while using the fixed income aspect of convertible securities to provide current income. and a reduction in price volatility, which can limit the risk of losses in a declining equity market.
Class I USD LU2264533006
Class I EUR LU2264532966
Class A USD LU2264532701
Class A EUR LU2264532610
Class R USD LU2264533345
R class EUR LU2264533261
Class F USD LU2264533691
Class F EUR LU2264533428
