DECALIA – Geneva

Roberto Magnatantini joined DECALIA in 2020. He is lead portfolio manager of DECALIA Silver Generation and DECALIA Eternity funds. Before joining DECALIA, Roberto was Head of Global Equities at SYZ Asset Management, where he spent 12 years managing two strategies for the OYSTER funds’ franchise. Before that, he worked four years at Lombard Odier and four years at HSBC where he managed equity funds. He is a CFA and CMT charter holder and holds a ESG certification from PRI.

Founded in 2014 and headquartered in Geneva, DECALIA SA is a fast-growing independent
investment management company, managing private and institutional assets. As of December 2021, it has $5 billion (4.9 bn CHF) AUM and 60+ employees, focusing on three activities: Wealth Management, Asset Management and Private Markets. DECALIA has expanded rapidly, thanks to its active-management experience built up over the last 30 years by its founders. The firm’s investment philosophy is based on several fundamental principles: stringent risk management, capital preservation, an active management style and selection of the best talent. They focus on developing investment solutions in four key investment themes: long-term trends, quest for yield, disintermediation of banking sector, inefficiencies in Europe. DECALIA are signatories of PRI and included in Article 8 of SFDR.

How does DECALIA fit into the Geneva-based investment community?
DECALIA is ranked Top 50 independent asset managers in Switzerland by Citywire. DECALIA is also a board member of the Alliance of Swiss Wealth Managers that unifies the largest Wealth Managers in Switzerland.

You have offices in Geneva, Zurich, and Milan? Is all investment management done from Geneva?
Yes, principally

You are a team of 12 fund managers, do you split sectors and geographies?
At DECALIA, all Portfolio Managers have a double expertise: investment manager and equity analyst. We are all seasoned fund managers so know the sectors and regions we cover but additionally, for example, I also tend to focus on healthcare and consumer. We try and meet all companies in which we are invested, and then all investment ideas are discussed by the entire team during the weekly team meeting or on a less formal basis if needed. For example, if I met Danaher, I would provide my colleagues with feedback after the meeting.

How is ESG integrated into your investment approach?
The investment team is supported by three ESG analysts with a sector focus for each analyst: Industrials and Clean Tech, Healthcare and Consumer. In terms of external providers, we mostly use MSCI. If MSCI rank a company CCC – it is “untouchable”. However, we regularly question MSCI ratings if we think that the rating does not entirely reflect the company’s credentials. Midcaps for example, are often less transparent in terms of ESG and this can negatively affect their ranking.

Do you vote your proxy for US and European stocks?
We work with ISS and outsource the first step and then our ESG analysts review the ISS proposal. In most cases, we align with ISS.

What screens do you use (given that you look for quality growth)?
We look for quality growth and believe that the proof is in the pudding, so we like to see that over the long term (10 years), a company has generated value. UnitedHealth, for example, which we’ve held for a long time, is an example as the stock price has outperformed with low volatility, reflecting its strong compounding characteristics. We also focus on ROCE – how a company has invested and the returns it has provided. A caveat is that companies with a MOAT, that are high quality and have a competitive advantage can be pricey. So, we also look for deep value, recovery plays (fallen angels) – we look for catalysts for the companies such as margin improvement and/or recovering market share, for example.

Any sectors you can’t invest in?
Tobacco, nuclear, controversial weapons – across all funds. Gambling for some funds too.  Companies with a CCC MSCI ESG rating. Note that my fund is focused on the demographics of an ageing population, not only about the increasing consumption of old people but about fighting ageing itself. So, companies that have nothing to do with my thematic are off limits. To give an example, even if I were convinced that SNAP (Snapchat) might be a good stock, I would not invest to maintain my thematic purity.

Do you have a minimum market cap?
$500 million at a screening level but rare to have something below $1 billion. We also look for a minimum of $1 million of liquidity per day.

Average length of holding?
Two to three years although this year it will be shorter. We repositioned the portfolio at the start of the year, as we were excessively exposed towards growth stocks and have now adjusted this tilt given our more muted market scenario.

Largest holdings in Silver Generation Fund – explain why you hold those in bold.
Air Liquide
Swiss Life
UnitedHealth Group
Novo Nordisk
ING Groep

Sanofi – an interesting case as the company has long been regarded as a dull player, with a relatively old small molecule portfolio, not a lot of growth nor an exciting pipeline. Our analysis is that this has changed, helped by a few smart acquisitions. They have positioned themselves with better and more innovation, mRNA technologies for example. This is something that was initially under-appreciated by the market, so Sanofi was cheap. It also has a promising portfolio in the field of immunology. The stock has corrected due to Zantac litigation worries and while it is too early to know the exact liability, we think that this offers a good entry point.

UnitedHealthGroup – this is my only US holding in what is a European fund. There is nothing equivalent in Europe, the rest of the world or arguably even in the US. UHG is the largest health insurer in the US. It has a unique position in that it has 50 million insured individuals and can leverage the data to which they get prime access. They have Optum Health, hospitals, they employ MDs, and they also have the IT side which is extremely valuable. They also have the pharmacy, which is often seen as ancillary and relatively low added value, but it is good for controlling cost and better understanding the market’s dynamics. Costs in the US healthcare system are exorbitant and reining them in is a political priority. UHG can help due to its understanding of the space and its vertical integration, so they really have a unique value proposition. It’s a value provider in a complex space with unique competitive advantages.

Largest holdings in DECALIA Eternity – explain why you hold those in bold.
United Health
Eli Lilly
Dollar General
Met Life
Cadence Design Systems
Molina Healthcare
Charles Schwab

Steris – very well exposed to two major growth drivers in healthcare. One – standards for safety and sterilisation becoming increasingly subject to more stringent regulations/standards. Two, there is widening demand – it’s not just from hospitals. There are more ambulatory surgeries, points of care etc. They are smart at acquisitions (e.g., Cantel). I like companies that do pragmatic and value creating M&A. They have a strong commitment to their core business, and it can grow by bolt on acquisitions around their competencies.

Dollar General – one of the most impressive management teams I’ve met. They are very good at adding new categories, providing value for money, and gaining a proximity advantage. They focus on rural areas and are smart about going for less glamourous areas. That’s a competitive advantage as they have strong relationships with their customers because they are more essential to them. They are good at adding new categories such as non-consumables, fresh produce, adding healthcare drugs but also reshuffling the shops. They’ve executed extremely well, and competition doesn’t seem to be an issue. However, the valuation of the stock is on the rich side so we are likely to take a little bit of profit rather than add at this stage, but we will still hold.

Charles Schwab – the trend for 401Ks to move into the private sector is beneficial to Charles Schwab. It is extremely good at innovating. Financial services are one of the sectors most at risk of disruption and they are a leader in innovation, for example, zero fee trading or robo-advisory. It has a very wide asset base – $7 trillion assets which is huge. They still have levers to monetize assets such as rising interest rates (although this is not specific to them) or third party products that currently don’t pay fees to Schwab. It’s a company that is very good at owning the relationship with the client and client satisfaction is high. They can also continue to optimise the portfolio. The stock is relatively cheap, and they have de-rated over the last 9 months so today it offers decent value.

All my holdings are exposed to my ageing theme.

What’s your benchmark and performance?
MSCI Europe (Silver Generation) and MSCI ACWI (Eternity). The Silver Generation Fund did very well last year but has lagged YTD due to its growth style, but it’s still ahead of competition since I took it over.

Active share?
I took over the Silver Generation fund in December 2020 and it now has ~75% active share (down from ~90% as we increased large caps like Sanofi, Novartis and AstraZeneca while selling positions such as Genmab, Tecan or Evotec). Eternity has ~90% active share (but it is obviously easier to have a higher active share in a global fund than a regional one).

Buy-backs or dividends?
There are pros and cons. I like the discipline of dividends for mature companies but there’s a risk that a company prioritizes dividends over investing in the business. To optimize capital allocation, buy-backs are a no brainer but sometimes there is a degree of financial engineering. So, I like buy-backs if they are done well and don’t damage the balance sheet. I like the opportunistic and flexible approach of buy-backs. A mixture of both is probably best.

Do you have to meet management before you buy a stock?
I like to meet management but there’s often not a lot of value is meeting mega cap names. Meeting smaller cap names does add more value in my opinion.

Preferred method of meeting management – virtual, in-person, conferences, one-on-one, groups?
Conferences and group meetings are useful for discovering new companies/ones we don’t know well. If it is a holding or a company we know well, we prefer a one-on-one.

Any companies who stand out as particularly good at IR?
Today, the level of professionalism within IR is generally high. Poor IR is an exception. Obvious outstanding companies within the pharma sector are particularly Scandinavian and Swiss companies such as NovoNordisk and Roche. In the US, Danaher is also very good at communicating.

What about Swiss secrecy regarding shareholdings?
The Swiss have the DNA of secrecy. I’m all for being more transparent. I will always say if I’m a holder or not but if the policy is against disclosing I abide by it.

Any tips for companies about how they should communicate with DECALIA?
In terms of how companies should communicate with us, we are long term so don’t want to focus on the quarter. US companies are often a little too short-term. A good example is NovoNordisk as they communicate well about short-term information for those that want it, but also give long-term guidance about where the strategy will drive them. We want to hear long-term targets and how they will be achieved.

* this interview also appeared in the Fall issue of IR Magazine

Leave a Reply

Your email address will not be published. Required fields are marked *