Fund manager reveals his worst trade of the year — and the lessons he learned
The Ranmore Global Equity Fund is no stranger to outperformance. Its fund manager, Sean Peche, has a track record in picking winners that have helped the fund beat the S & P 500 over the past two years without owning any of the so-called ” Magnificent Seven ” technology stocks. However, even well-run funds can face significant setbacks, Peche acknowledged. The fund manager identified the U.S.-listed Perion Network as its worst-performing stock investment of the year. “We thought it was the Google AdWords for Bing,” Peche explained, describing their initial assessment of the company. Perion enables advertisers to place ads on search results like Google’s AdWords service. What went wrong? At first, the investment thesis seemed sound: Perion Network was closely partnered with Microsoft ‘s Bing search engine, which was gaining market share thanks to its integration of ChatGPT, the artificial intelligence chatbot. The Perion’s financial position also appeared strong, with a third of its market value held in cash. As an Israeli company not included in major stock indices, the Ranmore fund manager believed it might be undervalued due to reduced investor attention. However, the situation took an unexpected turn. “Unfortunately, Microsoft changed their pricing strategy in digital advertising and the share price fell sharply,” Peche told CNBC’s Silvia Amaro on Pro Talks . In April, Perion disclosed that it expected revenues to fall to $590-$610 million in the first quarter, down from previous expectations of $860-$880 million – a significant blow for a growth company. The company said the revenue fall was caused by a drop in search advertising pricing due to changes made by Microsoft’s Bing search engine. In 2023, short seller Spruce Point highlighted such a risk to investors. The Ranmore fund manager noted that the company’s cash reserves, which stood at $188 million at the end of 2023, provided some protection against further losses. The stock has fallen nearly 75% this year. PERI 1Y line Lessons learned The experience reinforced a crucial investment principle for Peche and his team. “That’s why we are not high-conviction investors,” he added. “Because you don’t know what the future is. You [have] a company with some smart Israeli guys with lots of cash on the balance sheet and a growing market share, etc. Things change overnight.” The Perion Network position, which accounted for just over 2% of the portfolio, was larger than it should have been, according to Peche. This miscalculation highlighted the importance of diversification and risk management in a portfolio. Despite the setback with Perion Network, Peche remains optimistic about other investments. For instance, he mentioned positive performances from companies like Nippon TV , which has risen by more than 50% this year. Opportunities Moreover, the fund saw opportunities in French companies following political uncertainty in late June, demonstrating its strategy of seeking value during market turbulence. “When [President] Macron announced the snap election, we were buying some French companies,” Peche explained. “There was an opportunity to acquire more because all the macro investors were going, ‘Oh, this is a disaster,’ and we were going, ‘Well, these companies are cheaper, and people are still going to the supermarkets.'” The fund’s June commentary highlighted Carrefour , a French-listed food retailer, as a specific beneficiary of this approach. Despite a 12% drop in Carrefour’s stock price due to election uncertainty, Peche’s team saw long-term value : “There was no change in Carrefour’s business model, nor its long-term outlook, and regardless of the outcome of the French election, people will still need supermarkets in France.” CA-FR 1Y line That conviction led them to find the company “even more compelling” at seven times earnings and a 6% dividend yield. Ranmore’s fund returned 31% in 2023 compared with 24% for the S & P 500 . It also outperformed with 1.8% total returns in 2022, when the S & P 500 and broader indexes nearly fell into a bear market.
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