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19 August, 2014
The oldest investment fund in the Netherlands celebrates its eightieth birthday. The Robeco fund was established in March 1933. Since its foundation the fund experienced wars, recessions, financial crises, the end of industrial branches, periods of growth and the emergence of new businesses. These factors all positively or negatively influenced the return achieved in a single year. The purpose of the fund is to achieve stable results on the long term.
The history of the Robeco fund goes back to 1929. Club Rotterdam –consisting of industrialists of the city- founded the Rotterdamsch Beleggings Consortium (RBC) on the 3rd of September. The initiators were representatives of three illustrious families: Van Beuningen (Rotterdam port and transport), Van der Mandele (Rotterdamsche bank) and Mees (banking and trade). The timing of the creation of the RBC was remarkable: the Dow Jones reached an all-time high of 318.17 that day. Afterwards the prices dropped as much as ninety percent during a crash in November. On the 24th of march in 1933 the RBC was transformed into Robeco NV. The Dow Jones was on a level of 57.93 that day.
The Robeco fund is managed by a team of portfolio managers and analysts. The goal is unchanged- achieve stable results on the long term. Therefore, the fund invests in equity securities of which the upside potential is not yet reflected in the share price of today. Robeco is seeking for these shares all over the world, especially in developed countries, in order to map the long-term trends. Robeco meets the management of companies in their office in Rotterdam or they will go visit the company. The team attends conferences all around the world and speaks with external analysts about industrial branches and individual companies. This leads to a team that has such a big knowledge build-up that they can estimate some relevant trends for the next three to five years and which companies may benefit from it.
A number of long-term trends are visible in the energy sector. Major new oil finds are rare. The great discoveries of recent years have occurred in deep water like the Gulf of Mexico, far of the Brazilian coast under thick layers of salt, in the waters around Africa or in icy inhospitable regions around the North Pole. To process these new discoveries many expensive and technically advanced facilities and services are needed. Examples of companies that benefit from this trend are TGS NOPEC Geophysical and Cameron.
The consuming sector offers ample growth opportunities in the long term for producers of luxury goods such as watches, handbags and clothes. Growing prosperity, especially in emerging countries such as the BRICS, leads to an increasing number of people that can afford such luxury expenses. Examples of companies that benefit from this trend are Richemont, Prada and Burberry.
The emergence of Cloud Computing is an example of a major long-term trend in the field of information technology. Companies increasingly avoid large-scale, high-risk IT projects which usually have a long implementation time. It is far preferable to ‘rent’ their hardware and software. By doing so, they do not have any major capital investment itself and the IT costs will be included in the operating profit. Examples of companies that benefit from this trend are Accenture, EMC and Oracle.
The identification of an interesting trend is one thing, but to find an attractive share requires more effort. Not all the good news should already be in the price- valuation is important. Shares of which the Return on Invested Capital (ROIC) is underestimated are attractive. The premise is simple. The point is to estimate what financial resources a company needs in order to achieve their projected revenue and margin. The extend to which the company will succeed will affect the possible price potential. To put it simply, the less capital required by the company to achieve the targeted sales growth and margins, the better.
The analysts in our team are focusing on a particular industry branch. With their knowledge and experience they are able to estimate whether the financial goals a company expects to achieve are realistic and whether possible challenges are on their way. Valuation -the calculated price target- determines whether a stock is attractive enough to include in the portfolio.
Over the past few years an extra element has been added to the investment process in order to reflect the importance of a company in society too. In addition we will look at the strategies and policies of a company in the field of Environmental, Social and Corporate Governance (ESG). Therefore a questionnaire is administered every year. Based on the responses and/or publicly available information in the field of ESG policy we attribute a score to the company. If this score is very low, we consider the company as extra risky. To reflect this risk we will use a higher discount rate (WACC) in order to calculate the target price. In other words, the valuation of the share must be very attractive whenever we include it in our portfolio, because we want to be compensated for the risk the company bears –financially and socially- because of the ESG policy pursued.
The Robeco fund wants to be a reliable and sustainable partner for investing in global equity markets. With thorough financial analysis and with an eye for people and the environment, it is expected for Robeco to be able to achieve stable investment results on the long term.
This article is translated from Dutch to English by the Editorial Board of Asset | Accounting & Finance.
