Written By: Milja Mieskolainen
Our first event of 2020 focused on impact investing and active stock picking from the perspective of the financial group Taaleri. Taaleri is a listed company with four business groups: Asset Management, Capital, Energy and Garantia.
There are many different approaches to impact investing, but Taaleri's key idea is to "be part of the solution." Impact investing is one of the fastest growing segments in the investment market, as investors demand positive impact in addition to returns, which changes the way companies operate under growing pressure (Economic Research Study on Positive Impact on Investment Objects). The value of impact investment has risen to $500 billion (2018) from almost zero, which can be partly explained by urbanization. It brings with it the need for sustainable and energy efficient solutions, for example in construction.
Taaleri's energy funds, which focus especially on solar and wind power, will reduce carbon emissions by up to 14 million tonnes. Taaleri's renewable energy investments are worth over a billion euros and have yielded over 10%. Cost is deducted from the return. So investing in impact is not charity, but it does achieve something meaningful in addition to returns.
Taaleri's financial management is divided into two parts; Etf, which invests in the US market, and active stock picking in Finland, the Nordic countries and German-speaking Europe. This division is due to the fact that the US market is the most efficient in the world and Taaleri's portfolio managers do not have a competitive advantage there. In active stock picking, they have the opportunity to get to know companies, visit on-site meetings with management and take advantage of cultural knowledge. Allocations, meaning distributions between different asset types, are always made through etfs at Taaleri.
Our second speaker, Mika Heikkilä, says he is a value investor now and in the future. He was one of the first investment professionals to bring value investment to light in Finland, along with Vesa Puttonen. Taaleri's Arvomarkka is Finland's only fund specializing in value investing and it is managed by Mika Heikkilä. Heikkilä himself has a significant amount of wealth in Arvomarkka and he describes his investments: "You can't even think of bringing an irresponsible company into a portfolio.”
What is value investing? It refers to value philosophy that emphasizes the difference between the price and the value of a share or company. A value investor seeks out companies whose true value is above the market value. This requires information and analysis from multiple sources, and therefore Taaleri has a total of 25 partners. Without honesty there is no portfolio manager, so independent analysis as well as qualitative indicator analysis are key components in value investing.
Q&A:
Could you both (speakers) tell some book recommendations regarding value investing or in general?
• Benjamin Graham, Intelligent Investor: nvesting is not just about understanding key figures.
• Mika Waltari, The Egyptian: Broadening one’s worldview and understanding consumer behavior.
• In general, understanding megatrends and outlining their main forces for change. A company that is able to understand and take advantage of megatrends will succeed in the future. No single particular book has all the information needed, and therefore extensive reading on various topics is one of the basic tools of an investor.
Even if a small investor is interested and knows a lot, he does not have all the professional tools. Does Taaleri have an answer to this problem?
• Taaleri provides a route to these instruments through their funds. If a person wants to invest a smaller amount, such as EUR 500,000 - EUR 1,000,000, they will not have access to BlackRock's (= large asset management service) services, but Taaleri can collect, for example, EUR 30,000,000 in funds and thus use those services.
• Taaleri is not a broker, such as for example Nordnet, so it does not hedge its portfolios with forward contracts. In these, the parties undertake to trade at a certain price in the future at a certain point in time.
• As a whole, Taaleri offers access to various instruments, so the investor can allocate his assets, for example, through funds managed by Mika, if he believes in them. Wanting to implement his own ideas, Taaleri does not offer tools to the investor. In this situation, the investor can use, for example, the analysis service Inderes, in which Taaleri is a shareholder, and Nordnet's services.
How do you see the future of value investing, as it strongly divides opinions?
• As a caricature example, a third of investors will see value investing as “full rubbish”, a third need concrete, i.e. success in the past, and a third are somewhere in between. Investors who need things to be concrete like value investing, because when interest rates rise, value investor can get better returns, because during the low interest rate, the so-called easy money has fueled the success of growth companies.
• Currently, the indices have a high technology weight, which means that which means that they select the largest and most successful companies, most of which are currently technology companies (for example, the largest and most solvent companies in the S&P 500 on February 26, 2020 were Microsoft Corporation, Apple Inc., Amazon.com, Inc. and Facebook, Inc.).
• Picking stocks will be an opportunity to operate differently from the index. It will allow you to select companies in the portfolio whose industry or, for example, values you are interested in. The index does not think, it is enough that the company in question is big.
Taaleri is a listed company, but its stock exchange history is inconsistent with financial management. What is causing this?
• Taaleri is opportunistic, which means that the strategy involves taking a lot of risk, which is different from other asset management companies. As a result, the standard deviation of Taaleri's return increases and the risk increases, i.e. its volatility as an investment increases.
• The main reason for this is the balance sheet investments, which have fluctuated Taaleri's result. This is recognized and the strategy is being driven towards continued returns. Taaleri is looking for good and continuous growth in returns that have a large impact on share prices, i.e. they want steady growth below returns, where there is not much volatility, and more decentralized risk for balance sheet investments.
• If you want to create new successes, you need to invest in them. In terms of wind power, it took eight to nine years before that investment began to pay back money for Taaleri.