Archive of published articles

The Current Valuation of The Coca-Cola Company - 13 February 2009

The Current Valuation of The Coca-Cola Company.pdf

The Current Valuation of The Coca-Cola Company - Addendum.pdf

In October last year we argued the case that the current level of the equity market was offering very good value - and that as a cohort the Dow-Jones appeared to be trading at a bigger discount to a central 'fair value' estimate than at any time in the last 30 years. In the meantime the market has been volatile, but at one stage fell a further 8% from the time of our writing. We can't provide an accurate guide to when the market will bottom - but what we can say is that opportunities to buy great companies at low values are more prevalent now than at any time we have experienced. We have written up a short analysis of an excellent, stable business mostly unchanged over the last quarter of a century - we hope it will add further weight to the case we argued in October.

The current mood of Mr. Market - 31 October 2008

The current mood of Mr. Market.pdf

Two weeks ago Warren Buffett said that 'Equities will almost certainly outperform cash over the next decade, probably by a substantial degree'. We strongly concur with this view and believe that this period is offering exceptional value in stocks. Whilst no method can reliably forecast the future movement of the market, we believe it is possible to analyse the general level of the Dow-Jones by reference to its 10-year historical earnings (and by doing so generate a proxy for equities as an investment class). We have updated to the present Benjamin Graham's 1951 'Mechanical method' (from Security Analysis) for establishing if the Dow is higher or lower than a central value and incorporated the higher level of inflation which has been present in recent decades. In conclusion this purely quantitative method indicates that the Dow hasn't been this low for at least 30 years.

Long Term Performance of Commodities Markets 1911-2008 - 20 September 2008

Long Term Performance of Commodities Markets.pdf

In order to qualify some of the contrarian comments we have made on commodities over the last 3+ years (see our monthly updates for a record of these) we have formalised some of our research into the long-term price changes of a range of commodities. This paper outlines 22 long-term data series in commodity prices from 1911-2008 and makes observations on their performance against the stock market and the volatility which commodities have experienced over the last century. We show that on the whole commodities have significantly underperformed over this long-term investment horizon, but with far greater volatility in their cycles - promting us to caution those who may be tempted to speculate in commodities close to the peak of a strong bull market. We include our sources from Benjamin Graham's 1937 work 'Storage & Stability' and provide an appendix with the major bull and bear markets in the following commodities (from the indicated date): Crude Oil (1879), Wheat (1860), Soybeans (1914), Corn (1860), Sugar (1901), Coffee (1890), Cotton (1871), Copper (1900), Zinc (1900), Tin (1900) and Lead (1900).

Changing face of the UK index - 18 June 2008

The changing face of the 'UK' index.pdf

To coincide with the inclusion of another 2 mining & oil companies to the FTSE100 we make a number of observations on the changing constituents of the UK index. We also discuss some of the risk factors we consider pertinent in the best-performing stock in the market - Eurasian Natural Resources Corporation - which, given its 171% gain in the last 7 months, the stock market is apparently not so concerned about.

Ideal Shopping Direct - 15 January 2008

Exceptional undervaluation - Ideal Shopping Direct.pdf

Whilst most of our portfolio is invested in companies with market capitalisations over £100m, we do have one smaller company in the fund. Since the middle of 2007 the underperformance of smaller companies against their larger capitalised peers has been substantial.

It is often said that small companies are more susceptible to recessions than larger companies – we believe that whilst this might broadly be true a great deal depends on the specific financial position and stability of industry of any particular company. We examine the characteristics of Ideal Shopping Direct in detail and highlight why we consider it is trading at an excessively low price.

UK Housebuilding - October 2007

UK Housebuilding.pdf

The performance of listed housebuilding shares in the UK has been amongst some of the worst in the stock market during 2007. This reverses the situation which has prevailed since 2000 when speculative housebuilders have seen strong increases in their valuations (both nominally and in relation to their underlying asset values).

We consider that housebuilding is exposed to a cycle which occurs over periods of years and decades rather than months. Looser credit conditions amongst lenders and a speculative fever for development land have boosted housebuilding firms. We examine some of the potential candidates for investment and undertake an analysis of the extent of a speculative bubble in property and land.

The Price of Copper and the Re-bound in the Stock Market - 16 October 2007

The Price of Copper and the Re-bound in the Stock Market.pdf

In the last two months (since the Federal Reserve cut the discount rate by 50bps) the FTSE All-share is up 12%. The seven FTSE100 mining companies are responsible for one third of this increase on their own. The worst performing FTSE100 miner was up 34% and the best up 60%.

Reflecting on how this has affected our relative performance and the increasing importance of the price of Copper to the performance of the FTSE All-share - we examine the current prices of metals in a rather unorthordox way, hoping to demonstrate the difficulty in establishing a fundamental price for metals.

The advantages of simplicity in times of turbulence - 22 August 2007

The advantages of simplicity.pdf

Much has been written about the current increased market volatility caused by the US Subprime “crisis” and how hedge funds, quantitative funds and “ordinary” fund managers have performed and are coping with it.

We at Sceptre are extremely traditional in our approach to stock selection and at all times attempt to follow the investment process of Benjamin Graham and look for companies that have real cashflows, tangible assets, low debt, shareholder friendly management teams and that are priced cheaply by the market. This gives us our Margin of Safety and protects the portfolio from the general market volatility and large draw downs. The annualised volatility of our concentrated portfolio has been 10.4% over the last 12 months – this compares with 14.2% for the FT All Share index.

Identifying UK Closet index funds - 24 April 2007

UK Closet Index Funds.pdf

Two Professors from the Yale School of Management recently published a paper entitled "How Active is Your Fund Manager? A New Measure That Predicts Performance", which introduces the concept of Active Share and demonstrates (in understandable terms) that portfolios with the Highest Active Share significantly outperform their benchmarks.

We have summarised these findings and used them to analyse some 'active' portfolios in the UK and compare them to the index and to the Sceptre UK Fund.

BSkyB and Virgin Media - 23 March 2007

BSkyB and Virgin.pdf

We are currently invested in British Sky Broadcasting – BSkyB, and will attempt to demonstrate some of the aspects which cause us to believe it is a good investment. In doing so we will contrast certain of the fundamental financial differences between BSkyB and the recently rebranded Virgin Media Inc. which was previously NTL Incorporated.

JD Wetherspoon - 22 December 2006

JD Wetherspoon.pdf

In May 2005 we invested in JD Wetherspoon, a company which manages public houses across the UK. We considered the market to be significantly undervaluing the business and it was one of the funds first investments and largest holding for several months – the share price quickly increased above our valuation and we sold the position during mid to late 2006. We describe here the process behind the valuation and investment and hope it will provide an insight into our approach to anyone who may find it of interest.

Disclaimer

These articles are made by Sceptre Investment Management and directed at market counterparties and experienced investors only. The reports contains only publicly available information and the data used in the reports has been compiled and extracted from sources believed to be reliable (but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness). The reports do not constitute, nor should they be construed as, any recommendation in regard to the sale or purchase of securities nor should they be relied upon in any way, other than serving as an expression of the opinion of Sceptre Investment Management. Any analysis contained herein is based on numerous assumptions. The report should not be re-produced or re-published in whole or part, for any purpose, without the prior, written consent of Sceptre Investment Management. Sceptre Investment Management, its directors, officers and employees accept no liability whatsoever for any loss or damage arising from any use of these reports or any part of their contents.

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