Insights
These concise papers provide a detailed look at the factors that contribute to the investment decisions we make at Sionna.
The Great Divide: Public or Private Equity?
October 2024
Over the last four years, equity markets have seen a stealth value bull market. However, despite this outperformance, value managers have not yet seen large asset allocations being directed to this turnaround story. One of the possible drivers of the lack of interest, is the fascination with private equity (PE). Warren Buffett at his 2019 AGM commented, “We have seen a number of proposals from PE funds where the returns are really not calculated in a manner that I would regard as honest. If I were running a pension fund, I would be very careful about what was being offered to me.” An audacious quote, even from Warren, and an idea investors might be mindful of as they make asset allocation decisions.
Fixation with Rates: Unproductive and Unprofitable?
July 2024
In recent years, investors have been increasingly fixated on interest rates. How high? How long? When is it coming down? Will it come down? Is this the new normal? The curve is inverted, and steepening! What does this mean? What does history say about rate cycles? And so on and so on. This is understandable. Interest rates play an outsized role in asset prices. When rates go up, asset prices go down, and vice versa. This is because an asset is worth all its future cash flows discounted to the present day. A higher interest rate means a higher discount rate, which in turn means a lower present-day value of these cash flows. If you can forecast rates correctly, you have a better grasp of the true worth of an asset.
Passive Investing and Tragedy of the Commons: What if Market Efficiency is Already Melting Away?
April 2024
Active managers are discretionary traders, who seek mispriced stocks they believe will add excess returns to their funds. Passive investors are non-discretionary traders, they notionally need not worry about valuation, they believe the market is efficient, and thus perfectly reflects all known information. Their investment strategy is largely irresponsive to the price of the asset. Shiller explained, “Indexing …is free-riding on other people’s work” – in other words, active managers. At what point does there become too many passive players, such that they render the market unmoored from efficiency and thus turn the overall market inefficient?
When Quality Stumbles
January 2024
‘Quality’ as a distinct category or style of investing is relatively new, growing in popularity during the early part of the century and gaining a strong foothold amongst the investment world post the global financial crisis. What perhaps has been lost on many investors though is the fact that, like all assets, quality needs to be underpriced to outperform in the long run. Valuations matter!
Energy Transition Opportunities: North American LNG
October 2023
By the middle of this decade, we will likely be into the next phase of potentially lower global carbon emissions with the continued replacement of higher emission energy (coal) with lower emission options (natural gas). We will likely see North America solidified as a global cleaner energy exporter and energy independence also may occur within this timeframe. We believe there are plenty of investment opportunities within the energy space that will help the world reach this next phase, but patience is required.
A New Type of Trap
July 2023
As value investors, we are often asked (sometimes more often than we would like!) how our investment process avoids the well-known value trap. So, at the 2023 Value Investor Conference held in London, when Ben Inker of GMO spoke about a little-known concept – that of growth traps – he confirmed our long-held suspicion that growth stock disappointments can be bigger threats to investor portfolios than the oft discussed value trap. His analysis piqued our interest.
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