For more than 30 years, EDM has been a standard-bearer in asset management. Some funds, the launch of which dates back to 1987, have unparalleled track records. Over the years, we have added new equity and bond strategies to round out the broad panoply of investment vehicles and cover the lion’s share of the liquid asset spectrum.
Our investment team, which consists of 15 highly reputable, industry professionals, internally manages most of the strategies, as well as all of our clients’ portfolios. When investing, we do away with classic labels (Value? Growth?) that, when taken to the extreme, can result in poor returns, as we have seen in recent years.
Rather, we prefer to use common sense, selecting a limited number of top-quality companies with upside potential, understanding quality as a combination of qualitative (management quality, corporate governance, entry barriers, etc.) and quantitative elements (profit sustainability, cash generation, etc.). Believe me, there are not many companies in the world that comply with our demanding requirements.
At the moment, the environment is uncertain and changing. In three years, we have witnessed an extraordinary succession of events: a pandemic, accelerating inflation, a war in Europe, and deteriorating relations between the world’s two leading powers. Depending on the latest data, the market shifts between high future inflation and an economic slowdown. These circumstances are ideal for our investment style: apply common sense and be particularly selective.
This results in the very good returns obtained by our funds. We will briefly focus on a few.
EDM Strategy is our flagship in the European equities category, consisting of a diversified portfolio of global industry leaders. In Europe, and in our fund, we have unique assets in certain industries—a good example of this is the Dutch semiconductor supplier, ASML—and assets with directly monopolistic positions in other sectors (ie: LVMH, the hallmark of European luxury). In 2023, EDM Strategy has appreciated 16.28%, ranking it among the top funds in its category thanks to a combination of higher-than-expected profit growth and a slight rebound in multiples on the easing of interest rates.
It is only natural to wonder if the fund can continue to obtain favourable returns at a time when macroeconomic storm clouds are gathering. We think so. The companies that comprise the fund have growth catalysts that depend very little on the evolution of global GDP and their management teams have been ultra conservative in their 2023 business estimates. Moreover, the eventual relaxation of monetary policy will favour the strategy considerably.
Three years ago, EDM Pointer began its journey in the category of small-cap equities. Since that time, it has become a benchmark vehicle, investing in companies that are small in size but big on quality: non-cyclical, often family-owned companies (skin in the game) with little or no debt that, despite their low capitalisation, and leaders in their niches. Because they are relatively unknown, they trade at lower multiples than their larger counterparts and, therefore, are less sensitive to rate-hike scenarios, like that of the past year. And they have an additional catalyst: they are very susceptible to acquisition by competitors or private equity firms, with juicy premiums for investors.
Relatively speaking, 2022 was a great year in terms of the fund’s performance: it finished first in Spain and began 2023 on strong footing (YTD 6.15%). All indications suggest it will continue to obtain high returns—with an attractive multiple (2023e P/E ratio of 11.3x) and expected double-digit EPS growth—and maintain the defensive characteristics that protect investors from inflationary, recessionary, or rate-hike scenarios.
Another of EDM’s strengths is bond management. This category includes one of our oldest funds, dating from 1987: EDM Ahorro. Karina Sirkia has managed this fund since 2001, with excellent results. In 2023—to say nothing of previous years—it tops the ranking for its category (low duration bonds) owing to its flexible management: flexibility in terms of duration (3 years max.) and issuer profile (corporate vs. sovereign).
Examples of this flexibility are the changes we implemented in late 2022 and early 2023. We significantly reduced the weight of high-yield credit in the fund as a defensive measure against widening spreads. At the same time, we increased the weight of investment-grade bonds once yields increased. These actions combined with good duration management explain the fund’s outstanding recent performance.
The EDM Ahorro portfolio is also very well poised to face the challenges of 2023. Currently, 82% of its assets are defensive in terms of credit risk and would benefit from a decrease in inflation/rates. Most importantly, it offers a yield to maturity above 4%, something we have not seen in bonds for many years.
Because EDM Ahorro is conservative with regard to duration, we offer another fixed-income fund with shorter-term assets: EDM Renta. It replicates the previous fund, but with a duration considerably less than one year. The yield curve’s current inversion allows it to offer investors a return in excess of 3.5%, well above any bank deposit.
We would be remiss if we failed to mention our company’s other outstanding funds, like EDM Inversión (benchmark fund for Spanish equities since 1987), EDM Global Equity Impact (our most recent launch, which combines high sustainability with excellent returns), and EDM Cartera (a mixed fund that brings together EDM’s best ideas in both equities and bonds). We will discuss these in depth in future communications.
EDM offers a vast universe of high-quality funds tailored to any risk profile and befitting today’s uncertain climate. And all have one common denominator: excellent results and prospects in 2023.
Adolfo Monclús,
Head of Asset Management
