Manager Monday: Silchester International Investors
Using public data, we examine Silchester International Investors' performance across market cap, geography, sectors, and more.
Stephen Butt runs one of the world’s most successful global equity funds, Silchester International Investors LLP, an investment manager he founded in 1994. He runs money primarily for US institutions including pensions and endowments and many other investors who want to diversify their US holdings with investments in offshore developed markets, especially Europe and Asia. He seems to have made investors happy, outperforming both the US and international markets. The fund does not benefit from any short holdings, derivatives, or leverage (source) since the manger is exclusively long and depends on stock selection skill to outperform benchmarks. Simple in theory, hard in practice. But according to data we gathered from public filings, they do this masterfully and consistently.
As usual for our Manager Mondays, everything mentioned in this post is sourced exclusively from public data, including the manager’s profile, simulated performance and all other analysis and commentary. The data used here omits most non-equity securities and all non-public information such as actual fund performance. To simulate performance and determine portfolio attributes such as liquidity, we combine public holdings data with market and pricing data and make simple assumptions. Please note that for a manager investing globally, reporting standards differ greatly from US 13Fs and the portfolio we use here may significantly misrepresent the actual holdings of the fund. This analysis is for illustrational purposes only, makes no assertions of accuracy and completeness, and does not represent any advice or investment opinion.
Many outstanding managers prefer to let their numbers speak for them, so we will lead off, as we often do, with performance. From April 2000 to end of last year, the fund has trounced global benchmarks by a factor of 3. What’s perhaps a bit surprising is that they’ve done so with less volatility, leading to a higher Sharpe and Sortino ratio. A dream for risk-minded institutional investors.
The brief description of their investment philosophy from their website states that they “focus on maximum intrinsic value” defined by a few things including “lower multiples of earnings.” Simply stated, they’re value investors.
From a look-through perspective, there’s value in their portfolio still, even when compared against a developed Europe benchmark. The median stock in Silchester’s portfolio has a Price/Earnings of 16 compared to 20 for the benchmark. But more importantly, that number has been relatively stable since 2010, meaning the manager is still finding value in a rising PE environment.
The manager has about half his book (45%) invested in Mid-Cap securities, unlike many of their peers of similar size who find large and mega spaces more their cup of tea. This has been relatively consistent through their history, with the only major shift being Large Caps taking up more exposure at the cost of Small:
Our analysis bodes well for this change, and suggests that the manager can safely move up the spectrum as long as Mid-Caps are kept a healthly allocation. They’ve benefited from the bucket as Mid-Caps contributed most P&L to their overall returns.
Also, their batting average is highest in Mid-Caps but very strong across other buckets as well:
About half of the capital is now deployed in Developed Europe and a significant portion is in Asia, with a 29% allocation in Japan and 14% in APAC.
Unsurprisingly, most of the contribution is owed to Europe, but alpha is healthy across all major geographies. This means that they select outperforming securities regardless of their geographical location.
Alpha by Geography:
As far as sector preferences go, Silchester is a true generalist and keeps their exposure diversified among sectors at all times.
Astonishingly, the fund’s batting average is consistent across veritably all major sectors.
The manager consistently picks winning stocks across sectors, with some areas reaching stratospheric numbers—over 85% of stocks they pick in Industrials, Healthcare, and Telecom have been winning trades (data since March 2000). But perhaps nothing explains their outperformance better than the next chart. Across most of their significant sectors, they’ve ridden winners and cut losers effectively, leading to exceptional win/loss ratios in most sectors.
Healthcare is the clear outlier driven by a few home runs at large allocations. The multiple in the chart above means that their winners made (on average) 27x of what their losers cost in that sector. Impressive to say the least.
A Tough Year for Many, a Great Year for Few
In 2015, Silchester benefited from some key investments that helped them outpace benchmarks and outshine their peers. Their largest contributor, Delhaize Group, was a popular short among Hedge Funds in 2014. Hedge Funds shorted the supermarket operator along with WM Morrison (another long for Silchester) and other brands in a bet on a weakening European economy. But Delhaize rallied 46% last year and was one of Silchester’s largest bets. Looking at the year’s top contributors, we can see that all five were held for the duration of the year. The manager doesn’t trade too often and holds on to their winners. In fact, they’ve been invested in Delhaize since 2010, and added to their position at the right time. Most of the windfall came after 2013 in what we estimate made the manager $640m in profits.
Silchester’s top five contributors (all based on public data) in 2015:
When choosing managers, investors look at multiple factors, with geographical diversification being one major driver. But alpha remains the holy grail of investment management and so it’s no wonder Silchester has enjoyed so much investor interest and growth – they’ve demonstrated alpha year after year and are as diversified as they are persistent.
By now, you must have heard all about the things that went wrong for hedge fund managers in 2015. No doubt it was a challenging year, but the bright spots stubbornly remind us of the merits and tenacity of active management. In this collection, we profile ten managers who were able to overcome the head winds of the current environment and deliver strong returns to their investors in reward for their trust. These managers come from different backgrounds, use different strategies and are all over the map in terms of AUM and tenure.
They do, however, have one thing in common – their investment acumen landed them on our short list of top performing hedge fund managers of 2015. According to our public data research, these managers all earned north of 15% ROI on their long books in a year when equity benchmarks and hedge fund indices were close to flat.
So let’s meet last year’s top performers and dissect their stubborn disregard for averages.
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