Vilhena Maltese Opportunities Fund 25 years Anniversary06 June 2021The Vilhena Maltese Opportunities Fund, formerly known as the La Valette Malta Fund, was the first Collective Investment Scheme in Malta that provides its investors with access to a well-diversified portfolio of securities, which are predominantly listed on the Malta Stock Exchange and has delivered excellent results for its investors since its launch 25 years ago on 6th June 1996.
As at the end of May 2021, the Fund’s share price has appreciated by 367%, which means that since its launch date, the Fund has returned over 6% p.a. to its investors. The Fund has over time supported locally listed companies, most on their first public offering of equity or bond launch and is relatively still very popular with investors. Today the Vilhena Maltese Opportunities Fund has a fund size in excess of €25 million.
Over these 25 years since its inception, the fund has gone through many cycles facing both challenges and opportunities to register the growth it has experienced today. What strategy is the fund adopting to continue to build on this legacy?
The Fund endured several challenges and opportunities over the years, ranging from the 2008 financial crisis, 2012 sovereign crisis and more recently, the COVID-19 pandemic, which arguably presented the biggest challenge over the 25-year span. However, every challenge presents an opportunity and the Fund focuses on seizing them.
One of the fundamental strategies that the Fund focuses on is to invest in those companies which offer significant growth opportunities, creating more value for shareholders. In order to identify the growth potential that exists within locally listed companies, the Fund Manager meets with senior management and analyses in depth the fundamentals and accounting information. Additionally, the Fund also looks at the valuation metrics in order to ensure that the Fund invests in opportunities that are attractive.
Another strategy that the Fund adopts to maximise its shareholders’ returns is to look at the macroenvironment, that is, the Maltese economy. If we had to illustrate this and focus on the recent global coronavirus crisis, most sectors were impacted, particularly tourism. The Fund’s strategy during the pandemic was to avoid those sectors that were severely impacted, whilst focusing on those sectors which benefitted from increased demand. Hence, the Fund seeks to invest in opportunities that would maximise returns during a particular economic cycle.
We have recently observed a trend in the latest local Investor Sentiment carried out by MISCO on behalf of BOV Asset Management. As the Maltese investor's profile shows that the Maltese investors continue to have a consistent preference for local investments, do you see a fit within the Maltese investor's portfolio for this Fund today?
The Fund presents an optimal opportunity for the local investor who wishes to invest for growth whilst also having exposure to income generating securities as the Fund also provides exposures to Maltese Government bonds, as well as local corporate bonds.
The local investor is very dividend and income oriented and the Fund provides the perfect blend in receiving dividend and income payments, whilst achieving capital appreciation. During the pandemic, several Maltese companies opted not to distribute a dividend given the detrimental impact that the pandemic had on their profitability. Additionally, banks and insurance companies were restricted from distributing dividends. However, as Malta’s economic recovery is slowly underway, dividend is expected to resume gradually, which would be an added return to the Fund’s shareholders.
Additionally, despite the Fund’s bias towards local securities, it also provides a small exposure to foreign securities. Hence, the Fund also provides the investor with a platform to take advantage of any momentum that global markets would be gaining. Case in point is the pandemic period, whereby global markets started recovering before the local equity market, hence by having a small exposure in foreign markets, the Fund’s shareholders benefitted from this recovery.
Based on the latest IMF forecasts, the international and local economies are expected to grow and therefore encouraging further investments. Will this assist to a shift in particular themes in the financial markets that can benefit from this growth?
In contrast to the GFC, the Covid-19 crisis hit our shores. Tourism, one of the hardest hit sectors in this crisis, is a fundamental component of Malta’s GDP. The financial package set up by the Government and the strong vaccination programme, which put Malta at the forefront when comparing vaccinations per capita are the two main reasons why Malta’s economy is expected to rebound by 4.6%, one of the highest GDP growth rates in the Euro Area.
The Maltese equity market is considered to be cyclical in nature, meaning that it tends to do well when the economy is improving. In fact, c. 75% of companies listed on the Malta Stock Exchange are cyclical compared to the circa 55% of the European Index. This shows that as economies are gradually recovering, the Maltese equity market is expected to keep improving. The Fund took a defensive stance during the pandemic, that is preferring non-cyclical securities. However, as the first signs of recovery started to intensify, the Fund started shifting its exposure to the cyclical side of the market, whilst also taking advantage of the attractive valuations that existed within these securities.
As Malta started to emerge as one of the best vaccination countries across the globe and government allowed tourism to return in June 2021, the Fund started increasing exposure towards those companies that will benefit mostly from the re-opening of the economy.
Looking back over these 25 years, we have seen things evolving and changing shape from technological changes, currencies, to a digital customer behaviour. Looking forward to the next 25 years, what factors can mainly contribute to further positive performance of the Fund?
25 years ago, few people would have thought the world would evolve the way it has, where technology has become such an important part of our everyday lives. Customer preferences have shifted as products and innovations evolved making our lives easier. Furthermore, the world’s population is becoming more aware of the effects it has left on the environment and world leaders are pushing towards rectifying this and pushing towards a more sustainable environment.
History has taught us that the world is constantly evolving, and it is up to us to adapt. The Fund adopts this approach in picking those stocks that offer the best growth potential and maximise shareholder returns. In addition, although it is almost impossible to time the market, the Fund tries to anticipate the market and invest in those securities that are considered attractive from a risk-reward perspective.
Additionally, similar to the strong rally that technology stocks had over the past decade, the Fund tries to identify those industries that would be considered as long-term winners. In fact, companies that are considered to be ESG (Environment, Social and Governance) friendly are touted to be amongst the future winners given the greener push being imposed by world leaders.
As previously mentioned, the economic cycle is also an important part to the success of the Fund in the upcoming 25 years. It is imperative that the Fund monitors and adapts to the economic cycle as several opportunities might arise during a particular cycle.
Lastly, the evolution of the Maltese market would be another important contribution to the success of the Fund. The Fund’s primary exposure is towards local equities, hence the introduction of more local equities in the Maltese market would provide additional opportunities for the Fund to invest in, particularly if the listed companies are striving to achieve sustainable long-term growth.
The writer and the company have obtained the information contained in this document from sources they believe to be reliable but they have not independently verified the information contained herein and therefore its accuracy cannot be guaranteed.
Stephen Sammut,Investment Specialist, BOV Asset Management Ltd