Page 1

46

www.citywireglobal.com

investment

Issue 14: May 2011

investment

Star manager

47

Star manager

Ec

u h iq

FT

c 's re

ie r

SE

M aj

ord since the launch o

o

r ( M F)

ope E ur

O ST

XX

f Ec

hiq

u ie

Frédéric Plisson has a Citywire Euro Stars AAArating.www.citywireglobal.com/euro-stars rM

T R E U R (I N )

E u ro p

aj

Heading down as the crisis loomed

or

e 600 C R ( IN)

Echiquier Major (MF)

Source: Lipper

FTSE Europe TR EUR (IN)

STOXX Europe 600 CR (IN)

5 0

51. 6 8%

%

3%

. 75 28

5. 2

Total returns (%)

P

on liss

-5 -10 -15 -20 -25 -30

Boutique star Plisson thrives on bad news

citywirEglobal.com

The idea of a fund manager learning on the job might be alarming to some investors. So Frédéric Plisson was perhaps lucky that his first two years as manager of the Echiquier Major fund coincided with a rising equity market. Plisson found his first year especially tough, but his long-term performance suggests he learned some lessons. Although he still lost money, along with everyone else, his portfolio did particularly well in preserving capital during the worst of the crisis – and that has since been the foundation for his strong performance. His risk-adjusted returns over the past three years with Echiquier Major have earned Plisson a Citywire Euro Stars AAA rating, but he has been running the fund since its launch in 2005. Over that period he has posted a total return of 51.7%, while the Citywire benchmark, FTSE Europe TR, has risen 28.7% and his own benchmark, the Stoxx Europe 600, is up just 5.2% In his previous life, Plisson worked at the leading French brokerage house Exane, so his move to Paris boutique Financière de L’Echiquier and his transformation into a bottom-up stock-picker meant a steep learning curve. ‘I’m gaining experience all the time,’ he says. ‘Before I was just a sell-side guy, and I try to improve myself every year.’ With a watch list of around 150 companies, he says his

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

But preserving capital as markets tumbled Echiquier Major (MF)

Jun-08

Source: Lipper

FTSE Europe TR EUR (IN)

STOXX Europe 600 CR (IN)

10 0 Total returns (%)

‘In good times, I think that every year we can deliver a little bit more than the index, and in bad times, that’s when we have to create the gap’

-10 -20 -30 -40 -50

Frédéric Plisson had a good financial crisis. After a tough learning period, when he first moved into fund management, he came into his own as markets plunged, as Angus Foote discovers

Jun-07

improving performance was largely a result of getting to know those companies better. ‘What is very important for me is to understand their culture, because that way you can build conviction. When the market is very good, it’s always difficult for a stockpicker to be the best, because most of the time the market is driven by sectors or by specialist themes. So the first year, 2005, was quite difficult, because the market was driven mainly by increased oil prices.’ ‘When markets are bad, stock-pickers are better because they don’t care about sectors: they like stories, they like growth, they like management, they like the world of industry. So that’s why we were quite efficient in bad times. In good times, I think that every year we can deliver a little bit more than the index, and in bad times, that’s when we have to create the gap.’ It sounds simple, but do the figures back him up? From June 2007 to June 2008, when the market had started to fall but had not really collapsed, he slightly underperformed the index. But from June 2008 to June 2009, he significantly outperformed – during the period when most people lost the most money. So did he change anything in 2008 to react to what was happening in the market, or was it simply that his existing holdings performed better from that point onwards?

‘It was a fantastic period, because we could buy companies it was very difficult to buy before in terms of valuations,’ he says. ‘Our investment process is very simple: for each investment, we think there is a good price in order to deliver performance.’ Inditex, the holding company that owns fashion chain Zara, is a good example, he says. ‘We met Inditex for the first time in 2006, but at that time it was difficult for us to invest because the valuation was very high and we couldn’t find any upside.’ When the crisis came, Inditex was particularly hard hit as no one wanted exposure to Spain. ‘Because we had already done the work and fixed a price to buy, even though all the brokers told us this was not the time to invest in a Spanish company, we were able to buy the stock at the level we wanted. So it was a time to buy beautiful companies at the cheapest price.’ Just as reformed smokers often become passionately anti-smoking, in his new life as an investor the former broker Plisson delivers an unflattering assessment of the brokerage world. ‘I used to work in the sell side, which means that my job was very different from what I do today. It was more a question of how to be sure that my clients would move, that they would buy or sell.’ 

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

My best investment ‘Volkswagen was a very good story, because it’s a huge company that everybody knows, and in fact we doubled our investment. You can read everything about this company – it’s not a little company that we discovered by ourselves. Through our analysis, we found the right time to buy this company.’

My biggest mistake ‘Nokia was a disappointment. We thought that with more than €5 billion in terms of R&D, whereas Apple is less than €1 billion, this company could adapt its business model. But in fact, we were not so aware of the Finnish culture. They are Vikings, they are hard-headed and they don’t change much. They are stubborn people. It was a mistake, but we saw that it could be difficult for them to adapt this time, so we sold at the right time. We lost money, but we sold at €10 and it was €6 four months later.’

citywirEglobal.com


46

www.citywireglobal.com

investment

Issue 14: May 2011

investment

Star manager

47

Star manager

Ec

u h iq

FT

c 's re

ie r

SE

M aj

ord since the launch o

o

r ( M F)

ope E ur

O ST

XX

f Ec

hiq

u ie

Frédéric Plisson has a Citywire Euro Stars AAArating.www.citywireglobal.com/euro-stars rM

T R E U R (I N )

E u ro p

aj

Heading down as the crisis loomed

or

e 600 C R ( IN)

Echiquier Major (MF)

Source: Lipper

FTSE Europe TR EUR (IN)

STOXX Europe 600 CR (IN)

5 0

51. 6 8%

%

3%

. 75 28

5. 2

Total returns (%)

P

on liss

-5 -10 -15 -20 -25 -30

Boutique star Plisson thrives on bad news

citywirEglobal.com

The idea of a fund manager learning on the job might be alarming to some investors. So Frédéric Plisson was perhaps lucky that his first two years as manager of the Echiquier Major fund coincided with a rising equity market. Plisson found his first year especially tough, but his long-term performance suggests he learned some lessons. Although he still lost money, along with everyone else, his portfolio did particularly well in preserving capital during the worst of the crisis – and that has since been the foundation for his strong performance. His risk-adjusted returns over the past three years with Echiquier Major have earned Plisson a Citywire Euro Stars AAA rating, but he has been running the fund since its launch in 2005. Over that period he has posted a total return of 51.7%, while the Citywire benchmark, FTSE Europe TR, has risen 28.7% and his own benchmark, the Stoxx Europe 600, is up just 5.2% In his previous life, Plisson worked at the leading French brokerage house Exane, so his move to Paris boutique Financière de L’Echiquier and his transformation into a bottom-up stock-picker meant a steep learning curve. ‘I’m gaining experience all the time,’ he says. ‘Before I was just a sell-side guy, and I try to improve myself every year.’ With a watch list of around 150 companies, he says his

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

But preserving capital as markets tumbled Echiquier Major (MF)

Jun-08

Source: Lipper

FTSE Europe TR EUR (IN)

STOXX Europe 600 CR (IN)

10 0 Total returns (%)

‘In good times, I think that every year we can deliver a little bit more than the index, and in bad times, that’s when we have to create the gap’

-10 -20 -30 -40 -50

Frédéric Plisson had a good financial crisis. After a tough learning period, when he first moved into fund management, he came into his own as markets plunged, as Angus Foote discovers

Jun-07

improving performance was largely a result of getting to know those companies better. ‘What is very important for me is to understand their culture, because that way you can build conviction. When the market is very good, it’s always difficult for a stockpicker to be the best, because most of the time the market is driven by sectors or by specialist themes. So the first year, 2005, was quite difficult, because the market was driven mainly by increased oil prices.’ ‘When markets are bad, stock-pickers are better because they don’t care about sectors: they like stories, they like growth, they like management, they like the world of industry. So that’s why we were quite efficient in bad times. In good times, I think that every year we can deliver a little bit more than the index, and in bad times, that’s when we have to create the gap.’ It sounds simple, but do the figures back him up? From June 2007 to June 2008, when the market had started to fall but had not really collapsed, he slightly underperformed the index. But from June 2008 to June 2009, he significantly outperformed – during the period when most people lost the most money. So did he change anything in 2008 to react to what was happening in the market, or was it simply that his existing holdings performed better from that point onwards?

‘It was a fantastic period, because we could buy companies it was very difficult to buy before in terms of valuations,’ he says. ‘Our investment process is very simple: for each investment, we think there is a good price in order to deliver performance.’ Inditex, the holding company that owns fashion chain Zara, is a good example, he says. ‘We met Inditex for the first time in 2006, but at that time it was difficult for us to invest because the valuation was very high and we couldn’t find any upside.’ When the crisis came, Inditex was particularly hard hit as no one wanted exposure to Spain. ‘Because we had already done the work and fixed a price to buy, even though all the brokers told us this was not the time to invest in a Spanish company, we were able to buy the stock at the level we wanted. So it was a time to buy beautiful companies at the cheapest price.’ Just as reformed smokers often become passionately anti-smoking, in his new life as an investor the former broker Plisson delivers an unflattering assessment of the brokerage world. ‘I used to work in the sell side, which means that my job was very different from what I do today. It was more a question of how to be sure that my clients would move, that they would buy or sell.’ 

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

My best investment ‘Volkswagen was a very good story, because it’s a huge company that everybody knows, and in fact we doubled our investment. You can read everything about this company – it’s not a little company that we discovered by ourselves. Through our analysis, we found the right time to buy this company.’

My biggest mistake ‘Nokia was a disappointment. We thought that with more than €5 billion in terms of R&D, whereas Apple is less than €1 billion, this company could adapt its business model. But in fact, we were not so aware of the Finnish culture. They are Vikings, they are hard-headed and they don’t change much. They are stubborn people. It was a mistake, but we saw that it could be difficult for them to adapt this time, so we sold at the right time. We lost money, but we sold at €10 and it was €6 four months later.’

citywirEglobal.com


48

www.citywireglobal.com

investment

Star manager ‘I know the world of brokerage is a more short-term world than where I am today. It is more interested in the next semester than the coming years. So it’s useful to understand why they want to push one company and not another. It’s helped me to find the right timing to look at companies.’ ‘Most of the time I can be against the analyst. An example today is H&M, which really is a fantastic company. It has great potential for the coming years, but the market is more afraid of the short term and how it will cope with the rising price of raw materials.’ ‘All the analysts are pushing to sell this company because of the next quarter or the next semester. But for us, on the contrary, it’s a very good opportunity. We know this year will be difficult, but it doesn’t change the whole business model of H&M. We are sure that if it suffers, its main competitor will suffer more. What it want to do in this difficult year is gain market share. It doesn’t want to raise prices.’ ‘I am convinced the management will adapt the business model of H&M, and it’s not the first time they have done it. At the end of this process you will see growth coming back and their market share increased.’ ‘That’s the way I can use my experience in the brokerage, to know that those analysts are working on a short-term view.’ Plisson says his job is to select companies in a sector in which skill is important. ‘You can have a large company with fantastic turnover in terms of size, but scale is not so important to make a difference between you and your main competitor if you don’t have any innovative process, any R&D.’ So he is looking for companies with a special skill developed in their own country that they can then sell all over the world. ‘Mostly that’s what we like in emerging markets, where consumption will be the same in a few years for everybody in those countries.’ ‘Skill is important for innovation, because we want companies that can keep their market leadership by innovating every year. They also usually have a healthy balance sheet, so they can have an excellent free cashflow and with this cash they can buy competitors or they can buy companies in emerging markets.’

Top Ten Holdings of Echiquier Major Source: Lipper

DESCRIPTION

% PORTFOLIO

CAPITA

2.9

CONTINENTAL

2.8

HEINEKEN

2.7

DANONE

2.6

PRYSMIAN

2.6

UNILEVER

2.5

PRUDENTIAL

2.5

ILIAD

2.5

MAN

2.5

LUXOTTICA

2.4

citywirEglobal.com

Plisson and his team visit companies constantly, focusing especially on the quality of the management. ‘We like to see a CEO who is at the top of this company not by chance – when we look at their record we what to see that they really know the sector they’re working in.’ So Plisson’s ideal CEO would have been with a company for 20 or 30 years – or has only worked in one company. His team produces a commentary from every meeting, so they now have a database of commentaries going back 10 or 15 years. ‘We can check whether the CEO did what they said they were going to do,’ he explains. ‘When we meet with management, most of the time

we don’t talk about the next quarter, we talk about strategy, we talk about what is important in the next few years. We talk about what were their main mistakes, we talk about where they feel they have a major advantage as a CEO.’ ‘When we meet a company such as JC Decaux, we know that those guys are the best in their sector. They make mistakes, but in fact most of the time they have a good reaction and they can shift or change their model before the others.’ ‘We can’t predict the economic situation, we can’t predict what would happen in one year, but what we can predict is the quality of the management and how the management will react in a positive way to whatever happens. As investors, that’s the only way to be convinced that a company will be well managed.’

‘Our job is to select companies in a sector in which skill is important’

Lasting the distance Frederic Plisson says he wants to be very efficient at the office, because there is so much he wants to do in his spare time. Music and sport are major interests – he has completed the New York marathon twice and has also run the Berlin marathon. Climbing mountains is another passion, and Plisson has conquered Kilimanjaro. ‘The last day was very hard,’ he recalls ruefully. Like another of our recent interviewees, Stéphane Corsaletti, he has just finished reading the autobiography of Rolling Stone Keith Richards. ‘It’s a fantastic book – it’s about life,’ he says.


UK_Citywire_StarManager_May Issue_FPL  

inveStment 46 citywireglobal.com www.citywireglobal.com

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