Oldfield Partners LLP’s Q2 2019 Commentary

Oldfield Partners LLP, a London-based investment management company, recently released a Q2 2019 Commentary in its quarterly firm newsletter – a copy of which can be downloaded below. The firm specializes in providing long-term returns by means of patient investing. The company is being led by Founding Partner and CEO Jamie Carter. As the Chief Executive, he is responsible for business development and client relationships. Prior to Oldfield Partners, Carter worked at MLIM and was responsible for client relationships, marketing, and operations for its global equity team. He is a Loughborough University graduate and holds an MBA from the University of Cambridge.

In their recent commentary, Oldfield Partners LLP reported a 17.2% return from the S&P 500 for the first half of 2019 – the strongest since 1997. It also provided its strategy performance summary and snapshot in the report.

“Two trends still firmly in place are the outstanding performance of the US equity market, outperforming nearly all others, and the outperformance of “Growth”. In the first half of this year, the S&P 500 in the US has given a return of 17.2%, its strongest showing since 1997. The supremacy of US equities has been well justified by the strength of technology innovation and by earnings growth: earnings per share have risen by 6.1% per annum since 2008. The result is that the current price-earnings ratio of the S&P 500 is 18.1, exactly the same (Cerno Capital point out) as prevailed in June 2009, close to the beginning of the bull market. On the other hand, the Shiller price-earnings ratio, which takes today’s share prices divided by the average of the last ten years’ earnings (in order to smooth out cyclical ups and downs) is at an extremely high level. Critics of the use of Shiller point out that it is not much of a predictor: that is true of the short term, but not of the long term. Markets with high Shiller P/E ratios tend to have low returns over 10 years, markets with low P/E ratios tend to have high returns.

A good chunk of the US earnings per share growth has been achieved by share buybacks, given extra acceleration recently by tax cuts in the last two years. The value of share buybacks has exceeded total net income in several of the last few years. The result is that, according to Cerno, 134 of the 398 non-financial companies in the S&P 500 have more net debt than equity, usually an indication of over-extension. We remain very wary of the trend of US equity performance. We cannot know when the trend will end, though we have a stab at guessing from time to time, but it is a question of when rather than if.

As for Value versus Growth, we have had a stab at the timing of a turn in this trend, too. We felt very convinced in February 2016 that we were seeing the turn, and indeed 2016 was a golden year; but no gold since for our global portfolios, and our emerging markets portfolios, which had an excellent 2018, have also been struggling this year. Growth has outperformed Value to an extent unprecedented in recent times. In the long term there is some advantage to Value because of the simple but true proposition that low valuations lead in the long term to high returns. The Value path requires enormous patience because in the short term companies which have low valuations so often have some problem which may or may not prove to be temporary and because there can therefore be periods of several years when the proposition does not work.”

You can download a copy of Oldfield Partners LLP’s Q2 2019 Commentary here:

Oldfield Partners LLP’s Q2 2019 Commentary

You can also see the list of our 2019 Q2 investor letters and download them on this page.