Wealth Manager - Essential news for investment professionals

Register to get unlimited access to all of Citywire’s Fund Manager database. Registration is free and only takes a minute.

Six shorts powering Ardevora's portfolios

Gianluca Monaco, a portfolio manager at the group alongside Jeremy Lang and William Pattison, highlights three UK and three global shorts Ardevora currently has in place.

Ardevora sizes up clothing companies and shorts those failing to measure up

Ardevora is finding a number of shorting opportunities among clothing retailers, whether betting against overvaluation or questionable overseas expansion.

Gianluca Monaco, a portfolio manager at the group alongside Jeremy Lang and William Pattison (pictured), highlights three UK and three global shorts Ardevora currently has in place.

The Ardevora UK Equity fund is up by 59.9% over three years, compared with the peer group’s 49.5% rise, and the Global Equity fund is up 43%, versus the sector’s 39.5% over the same period.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

UK EQUITY SHORTS

Associated British Foods

‘We initiated this short nearly three months ago, mainly due to Primark, ABF’s clothing retail division, which has been the company’s main growth engine.

‘We see a big gap between the risk trajectory the company management is taking and complacency among investors. Despite a ballooning valuation, investors are increasingly convinced of Primark’s never-ending growth story and are willing to continue paying a huge premium.

‘Great growth stories can be addictive for investors, because of the frequent rewards they provide, but we think the decision to start opening stores in the US is a step change in risk.

‘We believe the company is taking a big risk in trying to export its model to the US. It could also be a sign the management feels Primark’s growth story is hitting a ceiling and it has to push into other, less familiar, territories.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Travis Perkins

‘After a long period of positive news, investors often underestimate the risks of a company. Travis Perkins has been a darling of the UK market for years, as a good play on the UK economic and housing recoveries. It was seen as lower risk than investing directly in the housebuilders.

‘However, this macro narrative has clouded what is going on at a company level. People like Travis Perkins’ organic growth story but we think easy growth is not there anymore, as it was mainly based on grabbing market share from competitors that disappeared in the crisis. Since initiating our short this April, the stock has underperformed the market by 8%.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Telecity

‘While the ABF and Travis Perkins shorts are related to investor biases, Telecity is an example of exploiting analyst bias. The market leader in data warehousing, Telecity was the favourite of analysts for a long time.

‘However, the industry has seen more competitors and capital flowing in, given the attractive returns on capital it offered. The Telecity management is simply not doing enough to tackle this increased competition.

‘Analysts find it difficult to overhaul an investment case after some negative results, so they may be prone to fall behind the curve and underestimate how deep-rooted the problems are. We put the short in place during the spring of 2013, and the stock has underperformed by 20% since then.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

GLOBAL EQUITY

Fast Retailing

‘Fast Retailing is on a mission to be the world’s biggest retailer, with the Japanese retailer behind Uniqlo trying to acquire J.Crew in the US.

‘We are not always against acquisitions but they must make sense by being complementary to an existing business.

‘Acquisitions often fail when the acquirer cannot retain the people in the acquired company. J.Crew has been completely overhauled and reinvented over the past 15 years by its CEO but he is now over 70 years old, and Fast Retailing cannot bet on him working his magic under someone else.

‘Irrespective of whether this specific deal happens, management will continue to pursue acquisitions of this kind and we think this strategy is too risky.

‘Investors tend to like a Japanese company that is trying to grow overseas, given the domestic constraints, so there is a lot of goodwill towards Fast Retailing, which is another example of investor bias. Since we put the short on in late 2013, the stock has underperformed by 18%.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Tidewater

‘Tidewater is a US service provider to the offshore oil and gas-drilling industry. It has benefited from the massive investment in offshore deepwater drilling over the past few years, and investors like the story.

‘The problem, though, is that offshore deepwater drilling has become unprofitable. Costs and capital intensity have ballooned and companies now must retrench.

‘The easiest thing for them to do is to cut back on the rig-towing and other services Tidewater supplies. The company’s management seems in denial of the changing environment and continues to invest massively.

‘We think there is significant pain to come. We put the short on in March this year and the stock has been treading water since then.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Lululemon

‘Lululemon is a Canadian manufacturer of expensive yoga gear. Its stock price skyrocketed between 2009 and 2013, after gaining market share selling into the North American urban elite.

‘It then hit operational problems. Having sold millions of yoga pants, it found out a number of products were see-through. If you are selling $150 [£90] pants, everything must be exceptional, from design to the materials and final sales experience.

‘Hiccups can happen but Lululemon did not react well by largely blaming customers for a fault that was entirely its own. Sales plummeted and the stock took a huge hit. Analysts started downgrading but they were behind the curve as they struggled to come to terms with the crumbling of a company they used to love.

‘When brand is the biggest selling point, not much remains once image is lost and the brand becomes fundamentally tarnished. We put the short on in March this year and it has underperformed by 25% since then.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Sarasin’s Boucher: why I like salmon with chocolate

Sarasin’s Boucher: why I like salmon with chocolate

Henry Boucher, manager of the £129 million Sarasin Food & Agriculture Opportunities fund, explains why he is gobbling up salmon and chocolate stocks.

Play Alibaba hype, the UK slowdown and opportunities in European sovereign bonds

Alibaba hype, the UK slowdown and opportunities in European sovereign bonds

Libby Ashby and leading wealth managers analyse what the Alibaba IPO hype means for Chinese equities, slowing growth of the UK economy and whether there’s anything left to play for in the European sovereign bond market.

Play Tesco, Japan and the rise of the central banker

Tesco, Japan and the rise of the central banker

 Libby Ashby and leading wealth managers scrutinise the food retail sector, Japan’s consumption tax hike and political risk in the markets.

Your Business: Cover Star Club

Veteran banker boosts Sanlam’s stockbroking team

Veteran banker boosts Sanlam’s stockbroking team

A veteran private banker has been recruited by Sanlam Private Investments to strengthen its advisory stockbroking team.

Wealth Manager on Twitter