Let's start by looking at the results: for many years now, more than fifteen, we have seen how the Spanish stock market has consistently lagged behind other stock markets in our environment. And if we include the US stock market, the result is frankly discouraging.
In fact, the Spanish index, even including dividends, is at the same levels as in 2006 and does not even manage to cover inflation over the period, a fact that contrasts with other markets. In short: someone who had invested in the Spanish index in 2006 with a long-term time horizon would have lost purchasing power (we are no longer talking about opportunity cost).
- Loss of 50% of assets under management of funds investing in Spain in the last three years. In the year 2021, in which 25,772 million euros were raised in mutual funds in Spain, barely 50 million entered in Spanish funds.
- An increasing number of Spanish companies are choosing to go public in other markets, both in Europe and the USA.
- An ever-decreasing number of teams are dedicated to covering the Spanish market.
- Growing disaffection with the Spanish stock market. Brokerage volume on the Spanish stock market has fallen in 2021 to 1999 levels.
- Shortage of IPOs of certain importance (Acciona Energía, Ecoener, Línea Directa) compared to the dynamism of other stock exchanges in our environment. It has taken 6 years to match the amount of Cellnex's IPO in 2015 with Acciona Energía.
- Spanish companies with an excellent management and income statement, have a much lower performance than other comparable companies: Acerinox, FCC, etc.
- The stock market is a reflection of the economy, and Spain's cumulative GDP over the last 10 years has lost 1.3% compared to a 5.2% rise in the Eurozone and 17.5% in the US.
- Greater information and increasing ease of trading in other markets and assets, through investment platforms.
- The influence of political decisions and legal certainty should not be disregarded (the electricity sector lost 15 billion euros of capitalization in September 2021). This effect is quite visible if we compare the performance of the Italian stock market with that of Spain in recent times.
- Emerging economies account for a large share of the income statement of Spanish listed companies, slightly more than a quarter of their revenues. This, in our view, has generated volatility and distrust in recent years.
- The Ibex 35 has a sector composition that is quite biased towards the financial and electricity sectors (with all that this implies), with little presence of the technology sector (Amadeus and Indra) and no presence of the luxury sector. These last two sectors have been among the best performers on other stock exchanges in recent years.
- Correlation between productive economy and index. In the Ibex 35, 60% of the companies that made it up 20 years ago are still present, while in the Eurostoxx 50 this percentage is reduced to 30% and in the S&P 500 to 2%.
- Low liquidity in the Spanish stock market. Only 24 companies in the continuous market have a market capitalization of more than 5,000 million euros, which complicates the entry of large fund managers beyond those 24. In addition, many smaller houses do not consider entering companies that trade less than 1 million euros a day.
- In our view, companies should be more proactive in the stock market. We need to continue to focus on issues such as transparency (especially when things go wrong), shareholder care, and we are not just referring to the payment of a higher or lower dividend, but to issues such as share buyback programs (when they can be done), accessibility to analysts/investors, increased share liquidity, continuous contact with shareholders, facilitating entries or exits in the shareholder base in a way that has little impact on the price, etc.
- Despite the overall picture, there are a number of companies in the Spanish/Iberian market that have performed, are performing and will perform well. Cie (14.5% annualized return over 15 years), CAF (10.8%), Vidrala (+14.08%), Rovi (15.23% since 2007), Viscofan (15.01%), Corticeira (+17.3%), Logista (+9.18% since its IPO in 2014), Inditex (+15%), Iberdola (+8.92%), Endesa (+11.66% thanks to the dividend), Naturgy (+8.02%), Clínica Baviera (+16.7% since 2012), Cocacola Partners (+11.5% since 2016), Global Dominion (9% since 2016), etc.
- From our point of view, initiatives such as BME Growth, despite their venture capital component, try to give visibility to "different" companies, some of them with a high innovation component and with success stories such as Masmovil, NBI, Gigas, Agile, Grenergy, Atrys, Izertis, Parlem, Almagro, Holaluz, etc.
- The high number of corporate transactions in the Spanish market is significant. There are still excellent companies, not recognized by the market, but by different investment groups, both private equity and industrial: Telepizza, Zardoya Otis, Euskaltel/Masmovil, ACS (Cobra), Ence (renewable division), FCC (water division), Solarpack, Neinor Homes, Lar, Naturgy, Parques Reunidos, BME, etc.
Against this backdrop, Finaccess Value continues to advocate active management, the search for well-managed, undervalued, quality companies that have demonstrated excellent long-term performance and that outperform the Spanish index by a landslide.
Column by Alfonso de Gregorio, co-chief investment officer, Finaccess Value