Continued resilience in difficult markets

In our most recent note, Resilience in difficult markets – a half-year report | Hardman & Co (hardmanandco.com), published on 4 October 2022, we analysed how FEV had performed YTD, and highlighted a few of its investments as key examples of its philosophy and process. As we approach the end of the calendar year, and despite the tough start, it is worth reiterating that FEV’s focus is on stock-picking and downside risk, and this should reassure investors that FEV is continuing to add value to investors over the long term.

• Difficult year for equity markets: As of 21 November, FEV’s share price is down 5.3% YTD, outperforming the index, which is down 9.7%; a 4.5% outperformance. The discount to NAV is 4.5%. We remain confident about FEV’s bottom-up investment approach and long-term performance, despite the current macro challenges.
• Macro and sector issues: In this report, we touch on a few issues that have made the financial headlines this year – energy prices, rising interest rates and concerns about the luxury sector, and we see how they affect FEV, if at all. We also briefly touch on a few other FEV-specific topics, namely, share repurchases, portfolio turnover, and fees.
• Valuation: 99.9% of investments are valued using quoted prices in active markets (95% is realisable within five days). The NAV is “real” – so any discount is anomalous. The current discount of 4.5% is below long-run averages, and is below that of FEV’s peer group, but not by much, despite the better performance.
• Risks: FEV has seen periods of underperformance when its investment style has been out of favour – typically, when the market’s preference has been for lower-quality, more cyclical stocks. Worries around performance are bound to resurface, given the current rotation, as well as the outlook for interest rates and inflation.
• Investment summary: FEV has outperformed its peers, benchmarks and UK indices over most time periods. Sentiment to Europe may vary – although we believe there is a perception vs. reality issue here. The current market jitters may lead to some return volatility, but, in our view, FEV’s long-term track record in a wide range of market conditions should reassure investors that the fund will not deviate from its tried-and-tested, long-term process and philosophy.