Matthew Beddall

The chart below shows the breakdown of total returns in the last decade for the MSCI World Growth and Value indices. We have shared this analysis in the past, and I thought it was worth producing an updated version.

Although I bridle at the idea that companies can be classified as either “growth” or “value” based on just a couple of numbers, these types of style indices at least provide a means of looking beyond the overall market averages. We would like to think that our approach is more nuanced, but without doubt we will tend towards looking at companies that sit within the value index.

The chart shows that when considering just dividend payments and earnings growth, these two groups of companies delivered broadly similar results. However, changes in valuations (as measured by the share prices versus earnings) meant that on average companies in the growth index far outperformed those in the value one. Put simply, in the last decade many companies have seen their share prices grow much more quickly than profits.

I suspect that many investors will be feeling smug about large stock market gains, without understanding the extent to which they have come from ever-higher valuations. Although in most areas of life folk love a bargain, when it comes to markets there is a tendency towards people investing in whatever has done well, irrespective of why the share price went up. Not so for us.

I obviously have my view on what this chart means for the future, but I will leave you to draw your own conclusions!

What about quality?

The MSCI Growth and Value indices have a younger brother, in the shape of the MSCI World Quality index. All three originate from work on “equity factors”, where cohorts of companies are grouped together based on a set of quantitative characteristics. The quality factor was a comparative newcomer to the academic literature, with MSCI using return on equity, earnings stability, and balance sheet leverage to form a quality index.

I have seen increasing discussion on “quality companies looking cheap”, with the respected commentator Ruchir Sharma calling it a “once-in-a-generation” opportunity in the FT. On this basis it would be remiss to not say something on this subject. The earnings data that we have available for the MSCI Quality index does not however extend back as far as for the Value and Growth indices, which makes it hard to include it in the previous chart (since our preferred measure of earnings growth for indices is a decade-on-decade measure which requires 20 years of data). So, instead, I just show rolling historic PE ratios for the three indices below, which give an indication of how expensive they appear versus each other and history.

The argument for “quality looking cheap” seems to be based on it having underperformed the market cap weighed indices last year, but this chart shows that the MSCI Quality index doesn’t look cheap relative to its own history. Whilst I suspect that there are clusters of “quality companies” that are cheap versus history, it doesn’t appear to be the large-cap companies that dominate this index.

As I have written in the past “beauty is in the eye of the beholder”. We think that “value”, “growth” and “quality” are all subjective concepts that feed into the desirability of a given investment case. Narrow quantitative definitions of these factors are useful analytical tools but are also subjective and are by necessity superficial. Our approach is to look at individual companies, “warts and all”, and use this to form a view both on their desirability as an investment and what we would be willing to pay for them.

I find that the quietness in markets over the Christmas break gives an opportunity for reflection. For the rest of the year, we are subject to a metaphorical firehose of news and information, much of which is directed at the short-term. I find that the forced separation from this unhealthy influence always provides renewed perspective.

Within capital markets, equity is the most permanent form of capital. Companies can issue or repay debts, buy or sell assets, hire or fire management, and undergo any number of other major changes. Short of bankruptcy, the equity capital endures through all of this. It is then somewhat ironic, that so much energy is directed to facilitating rapid decision making. For example, stock exchanges measure the speed with which orders can be executed in milli-seconds – or thousandths of a second!

Our job is to act as agents, making allocation decisions using other people’s money. Although our ability to discharge this responsibility can only realistically be measured in years, we are of course held to account over much shorter time periods. Much the same is true of the managements of the companies that we invest in, many of which are obliged to provide us with quarterly updates.

Clearly, accountability is a good thing, but I believe that the way it works in capital markets creates a structural bias towards short-termism. The steady stream of news and broker-analysis tempts investors into buying and selling more frequently than is justified and offers the illusion of “being in control” in the face of uncertainty.

In investing, however, being long-term and being wrong often appear indistinguishable from one another. Herein lies the rub!

I believe that there are three major sources of edge available in markets; (1) an informational advantage (knowing more than others); (2) an analytical advantage (better interpreting the information available to all); and (3) a behavioural advantage (avoiding the behavioural biases that are well documented in investing). Being long-term falls squarely within the third of these.

To behave in a long-term manner, you need conviction in your views. If you don’t have good reason to think that an investment will be worth more in the future, then being long-term clearly isn’t such a good idea!

Our long-standing holding in Warner Brothers Discovery offers something of a case study. For much of the time that we have owned it, the holding has been a drag on the performance of the fund. Our thesis was that the intrinsic value of the company was underpinned by what it owns, which included such things as the screen rights to the Harry Potter franchise. Whilst we had no idea when or how this value might be crystalised; we were confident that it existed. The bidding war to take control of these assets in the last two months, not only made the holding profitable, but validated the reason for our persistence.

Not all our investments will work out in the way that we would wish. Equally, not all years will see such strong performance as that of 2025. However, the commitments that I wish to reiterate to myself, and you, are that we will continue to strive to be both long-term and only act for well thought out reasons.

As your agent my interests are aligned with yours by virtue of almost all my own wealth being invested in the fund. Whilst I do not know what the short-term will hold, we remain committed to owning a diversified set of well thought out value-based investments. In this way we hope to navigate whatever 2026 might bring.

Matthew Beddall

CEO & Fund Manager, Havelock London Ltd

“People calculate too much and think too little” – Charlie Munger

It was in 1987 that Economist Robert Solow said, “You can see the computer age everywhere but in the productivity statistics”, and the comment appears as relevant now as it was then. Whilst credible explanations for this “paradox” have been put forward, developed countries continue to suffer stagnant economic growth that is blamed, amongst other things, on stalled productivity improvements.

Whilst the prospect of “AI powered everything” holds the promise of us both working less and achieving more, the ever-higher expectations being placed on AI increase the risk of disappointment [1]. This is an issue of importance to investors, because of the impact it might have on their jobs, and the broader impact on the economy. Are we on the cusp of a productivity driven boom or is technology placing a squeeze on most people’s disposable incomes that is holding back growth?

I came across Munger’s quote last month in the writings of a highly respected value manager, and it resonated with me. It resonated because I see the current enthusiasm for AI as further devaluing the importance of human thought. Although the current crop of “generative AI” models present human-like abilities to create text, images or videos, it would be a mistake to believe that they possess an ability to think. They do not. They are trained on unimaginably huge quantities of data that they “slice and dice” to create their impressive results.

With a background in statistics and computing I am a believer in both the power of using data to make decisions and the benefits of automation. Despite this I think the importance placed on “thinking” has been reduced in our industry, as it has in other aspects of our lives.

Much more energy is expended by the investment industry on modelling next year’s earnings, than it is on contemplating the longer-term challenges or growth drivers for a company. I think that this is in part because humans seek comfort in the certainty of exact answers, even if they are answering the wrong questions.

Deeper trains of thought allow you to engage in “second level thinking”, exploring the knock-on effects of the obvious. It helps you see what others don’t. In a world that is becoming increasingly flooded with information, I see an ability to make sense of it as even more important. Whilst automation frees up time for thinking, it does not remove the need for it.

The market environment since the financial crisis in 2008 has favoured large companies, favoured US listed companies, and seen the risk of falling share prices underwritten by government. This is an environment where investors did not need to think to do well, as it is an environment that favoured investing in passive indices over actively managed funds.

I cannot know if the market environment is shifting in favour of active management, but it would be a mistake to think that the large companies which dominate the passive indices must always out-perform the smaller ones that active managers generally favour. Likewise, it would be a mistake to think that the risks of financial loss in investing will always be “socialised”.

The punch line that we “like to think” is, at first sight, underwhelming. Apologies if you were hoping for something deeper! However, I see the world shifting in a direction where it is becoming a rarefied skill, and one that investors should value.

[1] Emily Bender and Alex Hanna’s book on this subject makes for excellent reading (THE AI CON – How to Fight Big Tech’s Hype and Create the Future We Want)

I felt that I should share some thoughts and observations on the large fall in equity markets that we saw in the first week of the second quarter of 2025.

From my perspective it looks like the type of panic that is to be periodically expected in markets, and of the type that I have seen many times before. Our estimate of the fund’s “beta”, or sensitivity to a short-term fall in markets, was about 1x, and so far, this looks reasonably accurate. For many of the mid-caps we follow the price action looks relatively detached from any reasonable interpretation of tariff threats, and I believe that the decline has been exacerbated by leveraged investors making a “mad rush for the exits”.

The Financial Times reported* on the observations of hedge fund broker, Morgan Stanley, that Thursday 3rd April was “the worst day of performance for US-based long/short equity funds since it began tracking the data in 2016”. It also said that “the magnitude of hedge fund selling across equities on Thursday was in line with the largest seen on record”. This suggests that price moves have been driven by a panicked liquidation, more than a calm analysis of the facts.

Although we do not believe in trying to make short-term forecasts, my “best guess” is that we will see a “relief rally” as the worst of the liquidation passes. I think the true implications of the changing world order will take longer to become clear, and hence impact market prices. These price falls are certainly not a reason why we would start liquidating our own holdings, rather we look to cautiously make opportunistic changes to take advantage of others’ panic.

An example of this is our large holding in Air Lease that saw a 16% price fall in the space of two days. Air Lease buys aircraft and rents them to airlines, and at face value the tariff on importing planes into the US might seem like bad news. However, much of the company’s business is outside the US. More importantly, they have written into all their contracts that it is the Airline customers who bear responsibility for all tariff-related costs. Given the price fall I would guess that this is not widely understood.

In the final few days of March, the company had announced a partial settlement with their insurers from the aircraft that they have had “confiscated” in Russia. This will reverse part of their previous write off and increases the likelihood that the remaining unsettled claims will pay out in the company’s favour. The impact of the initial cash payments from insurers is that the “book value” of the company will increase by around 4%.

So, arguably, in the space of a couple of days the company moved to be 20% cheaper than it was previously, with no material first-level impact from tariffs. The company continues to own scarce assets that are in high demand. If consumer demand for flying softens, then it will be the oldest aircraft that airlines idle due to the cost of maintaining them, not the comparatively new planes that Air Lease owns.

I share this story as an example of what we have been seeing “at the coal face”, and the opportunities that the panic is potentially creating.

I do not know if this panic will prove short-lived or not. However, I think investors face the dual threats of higher inflation, due to the size of government debts, and weaker corporate earnings, due to a subdued economy. In this environment owning cash or bonds risks losing purchasing power, whilst owning equities priced for high growth risks disappointment. I see the modest valuations and robust balance sheets of the companies we own as both a source of defence and opportunity. In the years following the dot-com crash, and the collapse of the “Nifty Fifty” in the 1970s, value investing delivered a healthy outcome for investors. I cannot know if this will repeat, but it evidences the argument for “value” in this environment.

At Havelock we are focusing all our efforts on running one fund in which we have our own money invested. We have had six consecutive calendar years of positive returns, as well as 18 out of 26 quarters. Our company is both profitable at its current size and has around 3 times its required regulatory capital in reserves. This is all to say that we feel well prepared for whatever comes next.

Matthew Beddall
CEO, Havelock London

* https://www.ft.com/content/8ba439ec-297c-4372-ba45-37e9d7fd1771