Buying tomorrow’s winners today, at low prices

If you want to earn more than the market offers with undervalued stocks, you have to spot future developments early.

Text by Mark van Huisseling

The experts at Genève Invest are what is known as “value investors.” That is, they believe that the market is sometimes not right. Rather, they think that individual stocks and bonds, in the short term, are trading too high or too low. The experts aim to find favorable stocks and bonds in time and then profit from them. In this way, they can earn more money than the average investor. Money that benefits the customers – you, in other words.

If companies are identified that are particularly well-positioned and whose shares are therefore likely to outperform the market, Genève Invest tries to determine how high the profit could be in ten years’ time. The professionals look at growth in the past, one year ago, three, five, ten years ago. The most important key figure is probably the book value per share.

How Genève Invest looks into the future

Looking ten years into the future – that’s ambitious. For this reason, the experts apply a discount to their assumption. They also compare the price-earnings ratio (P/E ratio) at different points in time with a P/E ratio that seems realistic to them. This allows them to decide whether valuations are wholly detached from reality or plausible in terms of returns. Microsoft, for example: Genève Invest bought a significant position in the technology company in 2013, and some clients have seen 900 percent book gains since then. Is that a bubble? No. Because the P/E ratio is about 32. A rule of thumb says the P/E ratio should be about twice the company’s growth – 16 percent growth is viable for Microsoft. So you can sell the stock, but you don’t have to. Understanding the stock markets is easy. In hindsight. Genève Invest’s claim is different. Without a crystal ball for a peek into the future, the experts look for those investments for you today that will bring a little more performance tomorrow.

FOR EXAMPLE FRAPORT

One of the selection criteria for shares chosen by Genève Invest is a return of around 15 percent a year, over ten years. Of course, not all the securities on which the company focuses perform as strongly. But the experts hope to achieve a clear outperformance, i.e., to be better than the average. For specific quality companies, they are satisfied with 12 percent, but results in the single-digit percentage range do not please them at all. The key is not to miss any momentum but to be cautious when traction might have been lost. Now is a good time to get involved if you can find the right companies – companies like, in the eyes of the Genève Invest experts, Fraport, the operator of Frankfurt Airport, among others. Its share price has fallen by more than 50% since the beginning of the year. A lot fewer people are flying at the moment because of the pandemic. And that may continue for a while. But sooner or later, vaccines will be produced and distributed that provide protection against Covid-19. Then, at the latest, the need for mobility will increase again. Fraport predicts that they will earn a profit on par with pre-crisis earnings as early as 2023 because of cost-saving measures that have already been taken. Seen in this light, Fraport is the top real estate in the center of Zurich or Munich that you can get today at half the price.

Do you know your portfolio? Do you know how much it costs you and what risks it is exposed to?

FREE PORTFOLIO ANALYSIS >

Do you know your portfolio? Do you know how much it costs you and what risks it is exposed to?

FREE PORTFOLIO ANALYSIS

“We don’t see a bubble and continue to focus on technology stocks as well.”

Scegliere il buon investimento
Helge Müller of Genève Invest recommends an adjustment: value stocks instead of just growth stocks, and investments in sectors that have been neglected for a while. Interview: Mark van Huisseling

We hear more and more about inflation and rising interest rates. Not a good prospect for investors.

Helge Müller: Yes, it’s a big issue. The waters on the markets have sloshed back and forth in the first two months of the year. Technology stocks initially experienced another price surge. But a few weeks ago, things turned around, and the NASDAQ 100, the technology companies index, is now trailing the Standard & Poor 500, the index of America’s largest companies, for the first time in recent memory. And this trend will continue, I think.
Since November, we’ve seen a sector rotation from value stocks, companies with much substance, to growth stocks, companies with high growth and earnings potential; paradoxically, investors opt for stocks in one category at a time, but rarely for both at the same time. This behavior may be linked to inflation expectations. For example, in the eurozone, annual price inflation was still 0.2 percent in November 2020, but by February, it was already 1.4 percent.

Which was also due to certain factors, such as the end of the temporarily reduced German value-added tax.
Agreed. But the underlying issue responsible for this is the sharp increase in the money supply that has been brought about by the pandemic. We’re seeing massive interventions by governments, stimuli in double-digit percentages of economic output, and by central banks in the form of bond-buying programs.

We are talking about classic investment drivers, basically.
According to economist Milton Friedmann, yes. But after the financial crisis of 2007/08, when comparable measures were taken, even if on a smaller scale, there was no increase in inflation.

The financial crisis was, at its core, a banking crisis.
Precisely, which is why the banks have passed on very little of the money made available to them by the central banks. This time, we are not dealing with a banking crisis. So the banks are now providing companies with liquidity on a large scale, on credit. This means that more money is getting into circulation, which further pushes the economy. Interestingly, central banks have indicated that they are not intending to raise interest rates for a long time. We see a combination of factors leading to an exciting situation.

Has this kind of initial situation existed before, and if so, can we learn from it?
Indeed, and it happened in the 1950s. The lesson, in a nutshell, is that it took quite a long time for inflation to set in, about five years. And during that time, we had so-called financial repression: government debt fell in real terms during the inflation years, while interest rates remained low.

Stocks and bonds are tangible assets and actually offer protection against inflation, don’t they?
Yes, they do. Although in the case of, say, 30-year U.S. Treasury bonds, a one percent increase in interest rates translates into about 30 percent in the bond price. In recent months, interest rates have gone up about one percentage point at the long end, after previously trading at about the same level as 10-year bonds, which is not normal. Let’s be clear: We don’t expect interest rates to rise quickly across the board. But we do expect the global economy to do well again soon, partly because of the stimulus packages and the further liquidity getting into circulation.

So what do you recommend to investors?
We need to identify companies that will benefit. Those that can pass on inflation-related additional costs to their customers. Then they will earn more because the higher prices bring in more money.

To do this, we look at the profit growth forecasts and assume that the direction and pace of growth can be roughly maintained. This allows us to say how a reasonable price/earnings ratio could look like in ten years’ time. For Alphabet, the parent company of Google and YouTube, we arrive at a potential of 400 percent share price growth in ten years – even at a discount from today’s P/E ratio and without inflation – that is, around 20 percent per year. Alphabet is not an isolated case, nor do we see the bubble described by some observers.

Alphabet is a technology company, and the stock is a growth stock. Do you have a value stock recommendation?
Yes, there are so-called cyclical stocks that appeal to us: chemical companies, industrial or commodity companies, and banks. They are representative of sectors that have been left behind recently but are now benefiting from the scenario described.

Can you name any companies?
For example, the Swiss/British commodities producer and trader Glencore. The stock’s P/E ratio, after earnings, is only at about 11; 17 seems reasonable to us. In banks, we look at Deutsche Bank; investors currently value the institution at about 0.35 of its book value, which is pretty low – is the bank going bust, or is the business model obsolete? We do not think so. We also hold the broad-based German chemical and conglomerate BASF, industrial giant Siemens, or the car and motorcycle manufacturer BMW. Nevertheless, we continue to focus our investments on technology companies, global consumer goods companies, and the healthcare sector.

A unique selling point of your asset management is expertise in fixed income. What do you currently say about bonds?
There is still money to be made in high-yield, high-interest corporate bonds. From the fast-food group Yum! Brands, investors who invest in dollars receive 4.5 percent interest. In euros, Burger King France, for example, pays 5.25 percent. And in pound sterling, we recommend the bond issued by the company that operates Heathrow Airport, which pays 4.6 percent. For government bonds, on the other hand, we still have only two words of advice: hands off.

How can you benefit from a portfolio analysis?

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There are plenty of resources investors can study to learn more about portfolio-management strategies. However, these tips are often too generic to be helpful. They don’t take into account what you’re saving for, and how your investments are faring in a volatile market. With interest rates such as they are, you need someone to consider the state of your specific assets before attempting to strengthen or adjust your holdings. Your portfolio is too unique to try to fit it to the general “advice of the day.” A free portfolio analysis gives you an opportunity to see where you’re overpaying and how you can stabilize the state of your investments. Genève Invest makes it simple to obtain an investment plan specifically tailored to meet your financial goals. Whether you want an hassle-free transition into retirement or you’re working guarantee your financial freedom, we take the time to understand you and your goals.

WHAT GOES INTO A FREE PORTFOLIO ANALYSIS WITH GENÈVE INVEST?

The first thing we do is look at the structure of your portfolio, and explore the overall risk of your investments. We make you aware of how your current holdings are likely to affect your financial future, so you can rethink the approach to your portfolio if need be. We’ll also look at the timeline of your goals, and whether or not you’re currently on track. After that, we’ll prepare a thorough breakdown of your securities. By organizing your portfolio into assets and categories, it’s easier to see if your risk profile, timeline, and financial plans align with one another. A wealth manager will evaluate the performance of your portfolio, paying careful attention to the state of your investment funds. Genève Invest looks for ways to save you money wherever possible. Hidden fees are a common problem, and if you hold a variety of different accounts, those fees are easy to miss. Restructuring your accounts can make it easier to streamline your deposits, cut unnecessary fees, and give you the financial flexibility you need to branch out. We take into account your credit score and total assets before proposing a personalized investment strategy. Absolute transparency is always our goal because, and we place a high value developing a relationship based on trust and integrity throughout any investment process.

HOW DOES GENÈVE INVEST BUILD LOW-RISK PORTFOLIOS THAT PRODUCE STABLE RETURNS?

Fixed-income investments are a smart move for many investors, despite interest reductions at the federal level. By finding the right selection of corporate bonds though, Genève Invest has delivered annualized returns of 6% over the course of five years. Our audited performance results prove just how valuable it can be to invest in low-risk, high-stability securities. We also look at how we can make value investing work for our clients by evaluating undervalued assets that are likely to catch up to the rest of the market sooner rather than later.

TYPES OF PORTFOLIO TYPES FOR INVESTOR

Fixed-income investments are a smart move for many investors, despite interest reductions at the federal level. By finding the right selection of corporate bonds though, Genève Invest has delivered annualized returns of 6% over the course of five years. Our audited performance results prove just how valuable it can be to invest in low-risk, high-stability securities. We also look at how we can make value investing work for our clients by evaluating undervalued assets that are likely to catch up to the rest of the market sooner rather than later.

INTEREST INCOME FROM FIXED-INCOME SECURITIES

Assets are invested in domestic or foreign bonds (investment and non-investment grade), profit participation certificates or share certificates in domestic or foreign pension funds, or participation certificate funds. Contingent convertible bonds, convertible bonds, and hybrid securities are also included as bonds.

INCOME PLUS YIELDS

A maximum of 30% of assets may be invested in domestic or foreign shares, quotas of domestic or foreign equity funds, or alternative investments (such as hedge funds or funds of hedge funds). Remaining assets may be invested in domestic or foreign bonds (investment and non-investment grade), profit participation certificates or share certificates in domestic or foreign pension funds or participation certificate funds. Contingent convertible bonds, convertible bonds and hybrid securities are included as bonds.

RISK-AWARE (“BALANCED PORTFOLIO”)

A maximum of 70% of assets may be invested in domestic or foreign shares, quotas of domestic or foreign equity funds or alternative investments (such as hedge funds or funds of hedge funds). Remaining assets may be invested in domestic or foreign bonds (investment grade and non-investment grade), profit participation certificates or share certificates in domestic or foreign pension funds or participation certificate funds. Contingent convertible bonds, convertible bonds, and hybrid securities are included as bonds.

DYNAMIC INVESTMENTS

A maximum of 100% of assets may be invested in domestic or foreign shares, quotas of domestic or foreign equity funds or alternative investments (such as hedge funds or funds of hedge funds). Any remaining assets may be invested in domestic or foreign bonds (investment grade and non-investment grade), profit participation certificates or share certificates in domestic or foreign pension funds or participation certificate funds. Contingent convertible bonds, convertible bonds, and hybrid securities are included as bonds. A Genève Invest Wealth Manager will not only identify the type of portfolio you currently have, but they will also tell you which type of portfolio best matches your current goals. Whether you’re young and ready to take some risks or you would prefer to keep your risk assessment as low as humanly possible, Genève Invest will do whatever it takes to make the most of your money.

WHAT IF I’M BUILDING A PORTFOLIO FROM SCRATCH?

Genève Invest is happy to build your portfolio from the ground-up! In fact, sometimes it’s better for us to start from scratch There’s no need for us to fix any mistakes from a previous strategy. We also have the opportunity to educate our clients about the current financial world, so they have the tools they need to move within and adapt to the marketplace. As long as you have hit the minimum investment volume of €50,000, a Wealth Manager will be happy to give you specific advice on which securities and funds make the most sense for you.

WHY SHOULD YOU WORK WITH GENÈVE INVEST?

Genève Invest has always been focused on the needs of our clients, no matter their goals or objectives. Too many wealth management firms fail to realize the everyday relationship an individual has with their money. Other firms have no way to measure the success of their clients, leaving customers in the dark about the concrete gains they’re making. But Genève Invest understands that the only way to provide consistent returns is to make the cash flow work for you. We measure your progress against your expectations as well as our own. Only then can we use that information to adapt to a rapidly changing market. Our clients also have access to the secure online banking tools they need to view the status of their portfolio at any time. If you choose to work with us, you can expect monthly statements and semi-annual analyses upon request. You have the freedom to withdraw your funds at any time, without incurring any additional costs. Finally, we’ve managed to secure better rates than many of our competitors due to our relationships with depository banks. In fact, our rates are up to 75% lower than that of traditional banks.