Taking stock: You’re due an upgrade

Share on facebook
Share on twitter
Share on linkedin

“Even a stopped clock tells the right time twice a day.”

Withnail & I, 1987

We have seen a number of positive profit warnings across the portfolio in recent weeks, which in aggregate, have had a beneficial impact on performance.

As the chart below demonstrates, consensus earnings estimates at the start of a year almost always turn out to be wrong by the end of that year – sometimes by a small amount, sometimes by a very significant amount. Our investment approach aims to exploit these abundant market inefficiencies by identifying situations where the consensus has inaccurately forecasted a company’s future prospects.

Source: Bloomberg as at 31 December 2019.

In uncertain times, the number and extent of these consensus errors becomes amplified. That has clearly been the case this year. In the space of a few weeks, the Covid-19 pandemic prompted a massive collapse in demand globally, which was then followed by a rapid recovery in demand as regional economies attempted to exit their lockdowns. It has been an incredibly difficult task for analysts to maintain accurate forecasts in the context of this rapidly changing economic environment. The stock market has attempted to discount the impact of these changes in real time with some success, particularly for larger businesses. But among small and mid-sized companies, where we tend to focus our attention, there has been a proliferation of mispriced opportunities. These are the ideal conditions for nimble active managers to potenially thrive.

And so, in the last few weeks, we have seen some of the portfolio activity undertaken earlier in the year to take advantage of these uncertain market conditions begin to pay off. Last week alone, we saw positive announcements from Danish jewellery business Pandora, Swedish online gambling operator Kindred, German online fashion company Global Fashion Group, Danish healthcare business Novo Nordisk and British gaming group GVC.

Sometimes the positive trading update itself is less relevant than the share price performance in the weeks leading up to it, and quarterly results need to be seen in the context of our longer term investment approach. We evaluate stocks based on our view of their potential over the next three to five years and how that compares to consensus expectations. Over shorter time periods, these earnings announcements are signposts against which we can check the progress of our investment thesis.

Nevertheless, these stocks, and others like them, have provided a collective boost to performance which we believe can continue. Our investment approach relies on judgements and we won’t always make the right calls, at the right moment, every time. However, our collective experience and disciplined investment approach have combined to deliver a consistently positive hit rate in recent years, which is evidence that we’ve been getting more of these judgements right than we’ve been getting wrong. The RWC Continental European Equity Fund and the RWC European Equity Fund are fast approaching their three-year anniversaries now, and the encouraging performance thus far bears testament to this successful hit rate.

This week’s highlights

As mentioned above, the world’s largest jewellery brand, Pandora, provided a positive contribution to performance last week following a positive update which confirmed that trading remains ahead of expectations. Organic growth rates continue to improve, and the shift towards higher margin online sales is having a positive impact on profitability. Meanwhile, the new management team’s brand initiatives also appear to be bearing fruit, which bodes well for Pandora’s longer-term growth potential across all its key regional territories.

The team held an interesting meeting with sports brand business Puma last week. This is not a current investment but was one of several meetings recently that have provided interesting insights into consumer behaviour during the pandemic. Lockdowns, social distancing measures, and other policy initiatives designed to hinder the spread of the virus, are having a massive impact on spending decisions. Consumers are collectively still consuming, but money that was last year directed towards holidays, trips to the cinema, rock concerts and other forms of social entertainment, has this year been directed towards smaller and more frequent purchases. Sportswear businesses have benefited from this, as have electrical goods manufacturers, fashion retailers and indeed some logistic companies that are responsible for shipping these goods to market. There are many winners and losers in this new dynamic but the key question for us now is, what will happen to these trends next year? More on that another time, perhaps…

Bellway, the UK housebuilder performed well last week following some encouraging data points on the health of the domestic property market. According the Halifax House Price Index, UK house prices were 7.3% higher in September than a year ago. Meanwhile, official property transaction data showed a fourth consecutive monthly rise in UK home sales and mortgage approvals have risen to the highest level since October 2007. The share prices of UK housebuilders remain well below their pre-pandemic highs (in the case of Bellway, the shares are currently more than 35% lower than they were in February), which in our view under appreciates the opportunity for recovery. Recent data from the UK property market appears to support this thesis. 

Source: Bloomberg as at 9 October 2020.

Unless otherwise stated, all opinions within this document are those of the RWC European and UK Equity Team, as at 13th October 2020.

Past performance is not a guide to the future. The price of investments and the income from them may fall as well as rise and investors may not get back the full amount invested.The names shown above are for illustrative purposes only and is not intended to be, and should not be interpreted as, recommendations or advice.

The term “RWC” may include any one or more RWC branded entities including RWC Partners Limited and RWC Asset Management LLP, each of which is authorised and regulated by the UK Financial Conduct Authority and, in the case of RWC Asset Management LLP, the US Securities and Exchange Commission; RWC Asset Advisors (US) LLC, which is registered with the US Securities and Exchange Commission; and RWC Singapore (Pte) Limited, which is licensed as a Licensed Fund Management Company by the Monetary Authority of Singapore.

RWC may act as investment manager or adviser, or otherwise provide services, to more than one product pursuing a similar investment strategy or focus to the product detailed in this document. RWC seeks to minimise any conflicts of interest, and endeavours to act at all times in accordance with its legal and regulatory obligations as well as its own policies and codes of conduct.

This document is directed only at professional, institutional, wholesale or qualified investors. The services provided by RWC are available only to such persons. It is not intended for distribution to and should not be relied on by any person who would qualify as a retail or individual investor in any jurisdiction or for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to local law or regulation.

This document has been prepared for general information purposes only and has not been delivered for registration in any jurisdiction nor has its content been reviewed or approved by any regulatory authority in any jurisdiction. The information contained herein does not constitute: (i) a binding legal agreement; (ii) legal, regulatory, tax, accounting or other advice; (iii) an offer, recommendation or solicitation to buy or sell shares in any fund, security, commodity, financial instrument or derivative linked to, or otherwise included in a portfolio managed or advised by RWC; or (iv) an offer to enter into any other transaction whatsoever (each a “Transaction”). No representations and/or warranties are made that the information contained herein is either up to date and/or accurate and is not intended to be used or relied upon by any counterparty, investor or any other third party.

RWC uses information from third party vendors, such as statistical and other data, that it believes to be reliable. However, the accuracy of this data, which may be used to calculate results or otherwise compile data that finds its way over time into RWC research data stored on its systems, is not guaranteed. If such information is not accurate, some of the conclusions reached or statements made may be adversely affected. RWC bears no responsibility for your investment research and/or investment decisions and you should consult your own lawyer, accountant, tax adviser or other professional adviser before entering into any Transaction. Any opinion expressed herein, which may be subjective in nature, may not be shared by all directors, officers, employees, or representatives of RWC and may be subject to change without notice. RWC is not liable for any decisions made or actions or inactions taken by you or others based on the contents of this document and neither RWC nor any of its directors, officers, employees, or representatives (including affiliates) accepts any liability whatsoever for any errors and/or omissions or for any direct, indirect, special, incidental, or consequential loss, damages, or expenses of any kind howsoever arising from the use of, or reliance on, any information contained herein.

Information contained in this document should not be viewed as indicative of future results. Past performance of any Transaction is not indicative of future results. The value of investments can go down as well as up. Certain assumptions and forward looking statements may have been made either for modelling purposes, to simplify the presentation and/or calculation of any projections or estimates contained herein and RWC does not represent that that any such assumptions or statements will reflect actual future events or that all assumptions have been considered or stated. Forward-looking statements are inherently uncertain, and changing factors such as those affecting the markets generally, or those affecting particular industries or issuers, may cause results to differ from those discussed. Accordingly, there can be no assurance that estimated returns or projections will be realised or that actual returns or performance results will not materially differ from those estimated herein. Some of the information contained in this document may be aggregated data of Transactions executed by RWC that has been compiled so as not to identify the underlying Transactions of any particular customer.

The information transmitted is intended only for the person or entity to which it has been given and may contain confidential and/or privileged material. In accepting receipt of the information transmitted you agree that you and/or your affiliates, partners, directors, officers and employees, as applicable, will keep all information strictly confidential. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information is prohibited. The information contained herein is confidential and is intended for the exclusive use of the intended recipient(s) to which this document has been provided. Any distribution or reproduction of this document is not authorised and is prohibited without the express written consent of RWC or any of its affiliates.

Changes in rates of exchange may cause the value of such investments to fluctuate. An investor may not be able to get back the amount invested and the loss on realisation may be very high and could result in a substantial or complete loss of the investment. In addition, an investor who realises their investment in a RWC-managed fund after a short period may not realise the amount originally invested as a result of charges made on the issue and/or redemption of such investment. The value of such interests for the purposes of purchases may differ from their value for the purpose of redemptions. No representations or warranties of any kind are intended or should be inferred with respect to the economic return from, or the tax consequences of, an investment in a RWC-managed fund. Current tax levels and reliefs may change. Depending on individual circumstances, this may affect investment returns. Nothing in this document constitutes advice on the merits of buying or selling a particular investment. This document expresses no views as to the suitability or appropriateness of the fund or any other investments described herein to the individual circumstances of any recipient.

AIFMD and Distribution in the European Economic Area (“EEA”)

The Alternative Fund Managers Directive (Directive 2011/61/EU) (“AIFMD”) is a regulatory regime which came into full effect in the EEA on 22 July 2014. RWC Asset Management LLP is an Alternative Investment Fund Manager (an “AIFM”) to certain funds managed by it (each an “AIF”). The AIFM is required to make available to investors certain prescribed information prior to their investment in an AIF. The majority of the prescribed information is contained in the latest Offering Document of the AIF. The remainder of the prescribed information is contained in the relevant AIF’s annual report and accounts. All of the information is provided in accordance with the AIFMD.

In relation to each member state of the EEA (each a “Member State”), this document may only be distributed and shares in a RWC fund (“Shares”) may only be offered and placed to the extent that (a) the relevant RWC fund is permitted to be marketed to professional investors in accordance with the AIFMD (as implemented into the local law/regulation of the relevant Member State); or (b) this document may otherwise be lawfully distributed and the Shares may lawfully offered or placed in that Member State (including at the initiative of the investor).

Information Required for Distribution of Foreign Collective Investment Schemes to Qualified Investors in Switzerland

The representative and paying agent of the RWC-managed funds in Switzerland (the “Representative in Switzerland”) is Société Générale, Paris, Zurich Branch, Talacker 50,

P.O. Box 5070, CH-8021 Zurich. In respect of the units of the RWC-managed funds distributed in Switzerland, the place of performance and jurisdiction is at the registered office of the Representative in Switzerland.

Explore more

Taking stock: Tech-tonic shifts

Dealing with a large and diverse investment universe, such as the one that Europe’s collective equity markets represents…

Taking stock: Catching falling knives

There is a regularly used phrase in financial markets, which becomes particularly popular in times of market stress: “Don’t catch falling knives”…

Taking stock: Where to from here?

European stock markets appear to lack direction at the moment. Following the steep sell-off in Q1 as the coronavirus crisis gripped global financial markets…


Please confirm your investor type



By clicking Submit, you agree that you have read and accepted the terms and conditions detailed in the DISCLAIMER

This website uses cookies. A cookie is a small data file placed on your computer which captures information about your choices which allows us to improve your experience of the website, for example, by remembering your country of residence. By continuing to access this website, you agree to be bound by our Cookie Policy. You can accept and/or block at any time by changing your browser settings.


Where are you located?



Rest of world

By clicking Submit, you agree that you have read and accepted the terms and conditions detailed in the DISCLAIMER


What type of investor are you?



By clicking Submit, you agree that you have read and accepted the terms and conditions detailed in the DISCLAIMER