Luxury sector, concessions, energy and banks, MAPFRE AM's bets on the stock market

Interview to Cristina Benito, Discretionary Portfolio Management Equities Manager at MAPFRE AM

1. As manager of Equities, what are your day-to-day duties?

My function is to head the Equities department of Discretionary Portfolio Management. My team is in charge of managing the equity portfolios of Mapfre Group companies. This is a team effort, in coordination with other Mapfre AM teams and in which we also use the financial analysis service provided by external entities. Taking into account macroeconomic and market variables, we select the best options within our investment universe, after conducting an in-depth analysis of the company and its valuation.

Management of the portfolios is carried out taking into account the companies’ investment policies and their specific needs, so direct contact with them is constant.

2. When did you join MAPFRE and how would you sum up the years you have been working here?

I joined Mapfre Inversión in April 2007, in the equity management department, and in 2017 I became part of Mapfre AM. My previous experience had been focused on financial analysis of equities.

I would rate the fifteen years that I have been working here as very positive, both from a personal and professional point of view. It has been years of constant learning, especially with the challenges we have faced in recent years in the markets and thanks to teamwork with colleagues of great professional value.

3. How should an equity portfolio be managed in today's volatile environment?

In recent years, we have experienced several periods of volatility, in which we have faced situations in which we had no previous experience, from the financial crisis with the collapse of Lehman Brothers in 2008 to the Covid-19 pandemic in 2020 or the Ukrainian War and its energy consequences in 2022. All these episodes of volatility have taught us the importance of active management based on fundamental analysis of companies.

In our investment process we give fundamental importance to analysis and valuation of companies. We invest with a long-term vision, so we must be able to maintain in our portfolios quality companies, with an attractive valuation and capable of generating shareholder value in the long term. We should take advantage of moments of market weakness as an opportunity to increase investment in companies in which we have a strong conviction, thus insulating ourselves from market volatility. It is often such moments that offer us the best opportunities.

4. Specifically, what is MAPFRE AM's equity strategy based on?

Mapfre AM's strategy for investment in equities in Discretionary Management Portfolios is based on the selection of securities according to the "value investing" philosophy. We perform a fundamental analysis and valuation of the company and invest in quality companies with a return above the cost of capital and an attractive valuation that offers a margin of safety compared to its intrinsic value.

As an insurance company, we have a conservative investment policy. Our investment universe is composed of large-cap companies and we invest in quality companies with sustainable margins that do not have excessive debt, have visibility in cash flow generation and generate shareholder value.

5. Despite this context of uncertainty, what opportunities might there be in the market?

Since the beginning of the year, and especially since the beginning of the Russia-Ukraine conflict, the equity market has performed negatively and we can find stocks in the Eurostoxx 50 with significant declines in the year and which have not revised downwards their earnings outlook for the coming quarters.

In this setting, there could be valuation opportunities in the market, but now more than ever, we must be very prudent and stock selection takes on special importance. We would select stocks that, in addition to having an attractive valuation, will be able, in the current environment, to defend their margins, have pricing power and therefore be able to pass on cost increases to price increases. In addition, in the current environment of rising interest rates, we would avoid companies with very high levels of leverage or that lack visibility on cash flow generation.

6. Which sectors tend to benefit in a context of rising rates and low growth, such as the current one?

Sectors that are able to defend their margins, both by controlling costs and by translating cost increases into price increases, will benefit the most in the current environment. One of the sectors with the greatest pricing power is the luxury sector, as its demand is less elastic to price increases. Concession companies whose prices are linked to the CPI would also benefit from the current environment, especially if they have long-term concessions and, in particular, those linked to passenger transport (highways, airports, etc.), whose activity is benefiting from the opening up of the economy following Covid. The energy sector is performing very positively, despite ESG constraints, due to the sharp increase in oil prices as a result of imbalances between production and demand. Lastly, the banking sector should benefit from the sharp rise in interest rates, although we must be selective as the slowdown in the economy will result in higher default rates.

7. Are you a fan of any stock market guru that you look up to or follow in particular?

There are many to learn from, but if I had to choose one it would be Peter Lynch. His book One Up on Wall Street is a must for those of us in the investment world.

Hobbies

Traveling, reading, everything related to the sea and, above all, spending time with my family and friends.

A dish

If I have to choose, I'll go for the potato omelet, although I like any spoon dish or a good rice dish.

A city/country

As a city, I find New York fascinating. I also love Rome and, without a doubt, Madrid. For sentimental reasons, I would also choose Menorca, which is where I have spent every summer since my childhood and where I always find peace. As a country, undoubtedly Spain.

A band

I don't have any specific group, it depends on the moment, but any Spanish pop group from the 90s.