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FFM Fund Newsletter - Dec 2021

December 2021

Dear investors, dear Friends,

Before coming back to the evolution of the markets and the performance of our Funds, we wish you, your families and your loved ones all the best for 2022.


The year 2021 ended on a positive note, after a complicated November. Most indices closed higher (S&P 500 +4.36%, Nasdaq 100 +1.14%, Euro Stoxx 50 +5.79%, CAC 40 +6.43%). Overall, it was another very good year for equity investors.

The indices reflecting the values of the developed countries showed good growth and many historical records were broken (S&P 500 +26.89%, Nasdaq 100 +26.63%, Euro Stoxx 50 +20.99%, CAC 40 +28.85%).

As always, it seems obvious in retrospect, but the year was not as easy as it seems. Indeed, inflationary fears, rising interest rates and the relentless third, fourth and fifth waves of Covid have caused some investors not to hold their positions.

While the indices ended the year on a fairly spectacular rise, many stocks experienced corrections just as sharp as those of a bear market during the year. This is particularly the case in the technology sector, and especially for companies with very high valuations. Many of these companies had become stratospheric, with price-to-sales multiples (market capitalization/turnover) sometimes exceeding 30 times sales.

Note that, for the valuations of the companies we follow, we refer more to the P/E (price earnings = market capitalization/net income or share price/net income per share), which is generally around 30 as well, but we are talking here about earnings, not sales!

While there is no doubt that some of these companies will be leaders in their fields in the future, the euphoria was simply too great to sustain such high valuation levels. However, as we have said many times: financial markets without speculative pockets are no longer financial markets. Bulls are an intrinsic part of it and it is not an anomaly.

Looking at the returns of some of the largest hedge funds active in the equity markets, it appears that many of them have been caught up in this latest trend. Many have, in fact, posted below-average returns in 2021. This is important to note since these funds are very active and their trading volumes sometimes cause significant short-term distortions.

What about 2022? Shouldn't we sell our positions and take our profits after such a great year?

It's true that the outlook may seem to be fading: some central banks (notably the FED) are going to raise short-term interest rates (from zero to very close to zero, but it's still a start), fiscal stimulus is on the way, inflationary fears are being felt, in short, the picture is getting darker for many analysts.

This is all true, but we don't think it calls into question an intelligent investment strategy. We want to invest in a limited number of good companies with acceptable valuations. We are a kind of intermediary: we entrust your hard-earned savings to companies that we believe will deploy their capital intelligently and thus generate good returns for their shareholders (you).

Our main job is to find, analyze and follow these companies, without worrying about interest rates six months from now. And the same goes for the managers of the companies we invest in: they don't seem to care about the macroeconomic situation, they are focused on how best to improve their products, reorganize their supply chains if necessary (one of the main topics of the moment), keep innovating, etc. If these business leaders don't care much about the issues that analysts seem to care about, why would you?

Over the year, we are very pleased to have outperformed the European indices again with our ESF fund, up +30.09%, despite not being invested in sectors that have rebounded extremely well from the collapse of 2020 such as banks, media, car manufacturers or financial services. Indeed, with this +30.09% increase, we are again comforted in our investment strategy. There will be periods of underperformance, that is a statistical truth.

This was the case for our ESF fund over fairly short periods during the year, but also for our AGF fund in 2021, with an excellent performance of +19.51%. One of the main reasons for this underperformance in the U.S. is that we did not invest in Apple (up 33% in 2021) or Tesla (up 50%).

Given that these two holdings represent more than 9% of the S&P 500 Index, their absence from our investment universe relatively impacted our performance relative to the Index. Not being invested in the energy and banking sectors, which have rebounded strongly, also weighed on the result.

However, this does not mean that we will change our approach: we are confident in the companies in which we have invested, both in Europe and in the United States, and remain convinced of our ability to outperform the indexes over the long term (as we do over a 2 and 3 year horizon).

In order to prosper, one must sometimes accept that one should not look for the best performance over shorter periods. Historically, the best performing managers over the long term tend to underperform about 35% of the time. This is the price to pay for good long-term performance and for calm and stable management when the horizon darkens.

Our portfolio holdings

We made a change at the beginning of the month in the Global Quality Portfolio certificate and sold our American Tower position, which had generated sufficient performance, to invest the proceeds in Netflix.

This is a company that we had been following for a long time, and which did not fully meet our investment criteria, with insufficient levels of free cash flow and relatively high debt.

However, the situation has changed, as after investing massive amounts of money in content and becoming the undisputed number one in its field (even Disney+ is struggling to keep up), Netflix is now able to generate substantial economies of scale and a staggering impact on the audience of the content it offers. Indeed, it seems hard to imagine, without Netflix, that a South Korean TV series like Squid Game could have become the most watched series in the world.

Moreover, the cost of producing such series is spread over a large number of subscribers, in this case the largest subscriber base in the world. Given this dominant position, Netflix is now in a position to increase the share of revenues flowing to its bottom line with a now attractive free cash flow and to reduce debt.

With best wishes,

Fisconsult Fund Management

For more information, please email

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