While job satisfaction is not a prerequisite to high performance it must be an asset. And Angel Agudo was no less than thrilled at joining Fidelity International in 2005, first as an analyst before moving on to run money, declaring it “the best job in the world”.
Agudo’s background is in engineering; he holds an MSc in Mechanical Engineering from ICAI, Madrid, and his first job was at Orla Medical where he spent 18 months designing and selling medical equipment, simultaneously getting a feel for his future investment style.
“Orla was a small, low growth company but it did very well for itself,” Agudo says. “That was important for me. If you don’t care about the flashy numbers then you can do well.”
A stint at LVMH followed where Agudo worked in IT and operations for five years. While he admits it was “not the cool part of Louis Vuitton” he recalls it as being “super fun”. His takeaway from his time there was that “implementing new things is much more difficult than a spreadsheet will tell you”.
LVMH sponsored Agudo to take a MBA, which he completed in 2005 and subsequently joined Fidelity. Once there, Agudo stormed through the ranks, first as a European analyst covering banks, industrials, media and construction before becoming assistant manager on the FF Global Opportunities fund in 2009.
In January 2011 he began co-managing the FF Global Industrials fund, which he continued with until February 2012. He also took on the responsibility for managing a US equity value fund, a pilot portfolio seeded by Fidelity, in November 2011. In December 2012 Agudo became the lead portfolio manager of the FIF American Special Situations fund. A role heading up the FF America fund followed in June 2014.
“Normally people come into the firm as an analyst, run Fidelity money and then manage client money. I’ve done that but on steroids. I’ve not covered more sectors than anyone else, but it’s close,” Agudo says.
The aim of the £1.1bn American Special Situations fund is long-term capital growth, and Agudo’s investment philosophy is contrarian and value-based. Key to this is the acceptance that he can’t predict what is going to happen, and he therefore has to cover all bases, he says.
“A lot of people work trying to know what is going to happen. I decided I can’t do that. All my effort is dedicated to knowing what could happen. The definition of risk is that more things could happen than will happen. I am never disappointed in the results as I invest in a range of outcomes. We are judged only on performance. I would die for performance.”
Agudo continues: “Once I decided I don’t know what will happen there are lots of possibilities. Small changes are irrelevant. I won’t buy a stock for 10 per cent upside. I don’t value companies at +10 per cent or -10 per cent. A stock needs to be worth much more: 30 per cent, 100 per cent, but not 10 per cent. But I need to be aware I can lose a lot.”
Agudo spends a great deal of time screening to find potential stock picks and looks for companies in difficulty, low margins versus their peers and sub performance.
“In general I look for problems. Companies people don’t like but with dependable fundamentals; inside there is something good. The stocks’ prices normally come down a bit after I buy them but then the companies fix themselves.”
At any one time Agudo is usually monitoring 80 names; 40 that have made it into the portfolio and a further 40 he is considering. He gives short shrift to the index (“I don’t care about the index”) and companies that don’t fit his criteria.
Before buying into a stock, Agudo analyses its net worth to estimate how much he could lose, and says he spends “a lot of time studying balance sheets”. The result is a bottom-up high conviction portfolio with over-arching thematic views.
“There are many ways of running money. The way I do it, if you want the portfolio to do something, you need to put down some risk. I don’t invest less than 150 basis points in something.
“I know I will get ideas wrong but I don’t want five ideas wrong at the same time. So I think about drivers not sectors. For example, I might invest in banks and cement mixers, but the underlying theme is housebuilders.”
Information techonology is a substantial theme in the portfolio and the largest sector weighting at 28 per cent, but you won’t find flashy Silicon Valley stocks such as Apple – the fund’s largest underweight versus the S&P 500. Rather, Agudo is interested in “the boring part” of IT, such as database software firm Oracle, a 5 per cent position.
“We have held Oracle for a long time; it is a cashflow machine,” Agudo says. “The firm builds software for companies, and once it is installed the programme is difficult to change. Its market position is strong. I bought Oracle because it is making the transition from software to cloud technologies. The transition has been difficult and the stock was cheap in the uncertainty. But the database business is phenomenally sticky and it is cashflow generative. I think it will succeed; it has the time and resources.”
The £1.1bn fund’s annual turnover tends to sit at around 30 per cent but Agudo points out that this is a reflection of the cash turnover in the portfolio rather than the turnover of companies. Agudo recently disposed of electronics retailer Best Buy on the view it was running out of time to “fix itself”, but admits he sold out too early. He also sold out of GPS technology firm Garmin, having done “very well”.
Two notable purchases in the past year have been Jacobs Engineering and Oil Rigs Now, both 2 per cent positions. Agudo says he has been focusing on “very dependable companies with downside protection”, characteristics of energy and materials companies.
“I have bought a lot of Jacobs Engineering; it provides the infrastructure to help energy companies and is up about 28 per cent since the end of April 2015.
“Oil Rigs Now distributes oil rigs. It became cheap as we are using oil rigs less. I bought it three quarters ago for less than its inventories and cash and it is up 50-60 per cent since then. So these things have worked.”
Year to date American Special Situations has returned 20.4 per cent against the 17 per cent average of the IA North American sector, according to FE data.
While Agudo is sanguine on the long-term outlook for US companies – which he says are cash-heavy and light on debt – he is ambivalent on the market outlook for Q4.
“The sustainability of earnings growth is a concern given that profit margins are close to 40-year highs in most sectors. Moreover, growing wages and interest rate pressures, combined with the strong US dollar, could weaken margins in some sectors. Nonetheless, some companies will perform better than others and this emphasises the need for good stock-picking based on fundamental bottom-up research.”
2005 – Angel Agudo joins Fidelity as an analyst
January 2011 – Agudo is appointed co-manager of the Global Industrials fund
November 2011 – Agudo appointed manager of US Value, an internal fund
December 2012 – Agudo becomes lead manager of the American Special Situations fund
June 2014 – Agudo takes over running the America fund
£1.1bn – Assets in the American Special Situations fund
30% – Annual portfolio turnover
80 – Number of companies Agudo is monitoring at any one time
150bps – Minimum initial fund weighting Agudo will take in a company