We are pleased to bring you this exclusive interview on small-cap value investing in Italy with MOI Global instructor Massimo Fuggetta, portfolio manager of Bayes Investments, based in London.
MOI Global: What motivated you to start a fund focused on Italian small-caps?
Massimo Fuggetta: Italy is at an inflection point. I know it sounds clichéd, but it’s true. After decades of stagnation and gridlock, real change is happening. I can’t believe I’m saying this, but for the first time in my life we have a government I am really proud of. Until recently, I have been trying to explain to people all that is wrong with Italy. Now I am very receptive to Prime Minister Renzi’s call to stop complaining and roll up our sleeves. The Made in Italy Fund is my answer to that call – to do something useful where I can.
The Italian stock market is small. There are only about 320 quoted companies, with a total market value of about 500 billion euro, which is not even 30% of GDP. Most of that value is concentrated in financial companies and public utilities. Add ENI in oil and a few consumer companies like Luxottica and you have three quarters of the market. If you buy an Italy ETF or one of the dozen “Italian equity” funds benchmarked around the index, you hardly realize to what extent you’re buying those few sectors and therefore dramatically underinvesting in what is really the heart of the Italian economy – small companies. Hence our choice to forget about the large caps and concentrate only on small caps, defined as companies with a market cap of less than one billion. It is a universe of about 250 companies, which is more than three quarters of the names, but only 8% of total market value.
The fund has just started, but our preparation for it has been long and laborious. Our aim has been to select the best 30 companies within the universe, in terms of profitability, growth and valuation. I started my professional life in the ‘90s as the Italian stock picker in a large asset management company in London. Over time I moved on to do other things, but I kept that responsibility throughout the decade. At that time stock selection, even within Europe, was done country by country. I stopped doing it for a while in the early noughties, but when in 2004 I formed an asset management company in Milan, Italian stocks were always part of the global value portfolio I managed.
MOI: The universe of choice seems quite narrow…
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