MSCI Index YTD return: -20.4%; CAPE: 12.73x
By Charles Glasse, manager of the Waverton European Dividend fund
In recent years, the Spanish market has delivered steady returns – sadly relative underperformance. Amazingly, over the past ten years the IBEX has never outperformed Europe in a calendar year.
This year the underperformance has accelerated. The hope among some is that this will change with the EU recovery fund stimulating the economy.
Unfortunately, the Spanish market is dominated by value trap sectors: banks, telecoms, construction and travel, many of which have had pricing power eroded by the internet and increasing competition.
So who would invest there? Answer: a few hardened stock-picking funds looking through the undergrowth, looking for great cheap stocks.
Spain does have some excellent world-beating companies that meet many of the criteria we look for – including pricing power, companies run for all shareholders, and a capital cycle where demand is structurally exceeding supply of their product or service.
That limits the field to some great large caps such as Amadeus (IT for airlines), Inditex (Zara owner), Galp (oil), Aena (airport operator) and Iberdrola (renewables utility) and many more mid caps such as Viscofan, Cellnex.
To conclude, Spain does have winners that continue to shine. But, just like it was a mistake to buy the market for its exposure to Latin America, care and experience are needed to make good returns.