To understand the pain of value investors, just look at results from the market crash in March. International value stocks lost about 28 percent in the first quarter, while international growth lost 17 percent.
Still, beginning at the market’s most recent low, David Samra, who oversees $20 billion in value strategies at Artisan Partners, repositioned the portfolios.
He sold off some of the best performers, including Lysol-maker Reckitt Benckiser. And he bought what he thinks are good businesses, including three in oil and gas, whose stock prices were trading at a huge discounts.
Samra’s first move was deploying a cash hoard — the fund’s maximum of 15 percent — that he had going into the downturn. The portfolio is now fully invested. Samra has invested all his cash only three times since 2002: once during the global financial crisis, during the correction at the end of 2018, and now.
Artisan International Value lost about 4 percent more than the benchmark in the first quarter, and also trails for the one-year and five-year periods ending March 31. Only over 10 years and the life of the fund has Artisan outperformed.
[II Deep Dive: Value Investing Isn’t Dead Yet, Research Affiliates Argues]
The fund manager has purchased a record number of new stocks in a single quarter, including Alibaba, Trip.com, Schlumberger, Tenaris, Suncor Energy, Sony, Danone, and CNH.
Samra’s buys fit into three areas. The first group are businesses such as Sony and Danone that normally trade at valuations exceeding Artisan’s value bent.
Travel and leisure make up the second category. Artisan looked for companies with the strongest balance sheets, such as Ryanair, Europe’s largest airline. “The European airline industry is far less consolidated than the U.S.,” he said. “This downturn should put that consolidation into play very rapidly,” he added.
As for the third group, Samra went into oil and gas for the first time. “When the price of a commodity falls below the cost of production, that sets up a highly favorable dynamic for us,” he said. “Oil and gas stocks have been murdered.” But Samra says the fund may have to wait a while for a recovery. “Usually when [fuel] prices are this low, people trade in their subcompacts for a SUV. But now nobody is driving.”
If Artisan stages a comeback through this crisis, it may not be because as value as a style rebounded.
Samra remembers a conference late last year when value managers insisted that the spread between value and growth was so wide that it was time for the category to outperform. “I said the reality is that value stocks look statistically cheap, but in a downturn, they’ll perform far worse than some of these steadier businesses.”