Lombardia Capital International Equity Value Strategy Overview Q1

1ST QUARTER 2015
INTERNATIONAL EQUITY VALUE
STRATEGY OVERVIEW
FIRM OVERVIEW
STRATEGY OBJECTIVE
Lombardia Capital Partners, LLC (LCP) is
an employee owned minority boutique
asset manager specializing in U.S. and nonU.S. value equities. We offer investment
management services to institutional,
public, corporate, multi-employer, and notfor-profit clients.
The International Equity Value (IEV) strategy employs a bottom-up,
fundamental, absolute value approach to investing in non-U.S. companies.
We adhere strictly to the principle of margin of safety pioneered by
Benjamin Graham, considered by many to be the forefather of value
investing. Our research is entirely independent and we gravitate towards
the out-of-favor, ignored, and misunderstood. By taking advantage of
depressed valuations, we achieve favorable asymmetry for our clients: the
potential for significant long-term capital appreciation with strong downside
protection.
We manage approximately $3.5 billion
from our offices in Pasadena, CA and
Chicago, IL. Our suite of domestic and
global equity value strategies provide
diverse investment opportunities for
prospective clients who seek long-term
risk adjusted outperformance.
INVESTMENT APPROACH
We view securities as pieces of ownership in companies that are up for sale
and only purchase them at significant discounts to our conservative
estimates of intrinsic value. History has shown that the difference between
price and value narrows over time thereby generating profit for the patient
investor. Our staunch focus on price stresses the important distinction
between a great company (which the market often overpays for) and a
compelling investment (one valued and made from the perspective of the
rational businessperson). Our opportunity set consists largely of businesses
experiencing temporary company-specific or cyclical setbacks that are
priced to be permanent as well as securities cast aside for reasons unrelated
to long-term fundamentals. Further, we favor operating models that we can
understand and that have determinable value. Given our emphasis on capital
preservation, we place special importance on balance sheet strength,
recognizing that leverage can curtail an investor’s time horizon and
permanently impair wealth.
INTERNATIONAL EQUITY VALUE
STRATEGY OVERVIEW

Assets under management: $366 million

Bottom-up, absolute value approach to
investing

Focused on the principle of margin of
safety

Typical holding period is three to five
years

40-60 portfolio holdings
ANNUALIZED COMPOSITE RETURNS†
Gross of Fees
15%
Net of Fees
MSCI EAFE
5%
INVESTMENT TEAM
-5%
Al Polit, CFA
Partner, Portfolio Manager
-15%
QTR
1 YR
David Lin, CFA
Managing Director, Portfolio Manager
Bert Whitson, CFA
Senior Research Analyst
Jonathan Veiga, CFA
Research Analyst
3 YR
5 YR
7 YR
10 YR
Since Inception
(12/31/03)
Gross of Fees
Net of Fees
MSCI EAFE
QTR
4.19%
4.08%
4.88%
Spread**
-0.69%
1 YR
-11.28%
-11.62%
-0.92%
-10.36%
3 YR
15.34%
14.88%
9.02%
6.32%
5 YR
10.99%
10.48%
6.16%
4.83%
7 YR
7.60%
6.95%
1.55%
6.05%
10 YR
7.54%
6.78%
4.95%
2.59%
Since Inception (12/31/03)
9.07%
8.26%
6.10%
2.97%
†Not annualized if less than a year. See GIPS Performance Presentation.
**Difference between Gross of Fees performance and benchmark performance.
LOMBARDIA CAPITAL PARTNERS, LLC
Headquarters: 55 South Lake Avenue, Suite 750 • Pasadena, CA 91101 • P: (626) 568 2792 • F: (626) 568 2771
30 North LaSalle Street, Suite 4030 • Chicago, IL 60602 • P: (312) 269 1060 • F: (312) 269 1061
[email protected] • www.lombardiacapital.com
1ST QUARTER 2015
INTERNATIONAL EQUITY VALUE
PORTFOLIO OVERVIEW
PORTFOLIO CHARACTERISTICS VS. THE BENCHMARK*
International
Equity Value1
MSCI
EAFE1
43
910
$3.8
$56.1
Number of Holdings
Weighted Market Cap ($bn)
Price/Book Ratio
REGIONAL WEIGHTS VS. THE BENCHMARK*
International
Equity Value
MSCI
EAFE
Europe (ex-U.K.)
42.4%
47.0%
United Kingdom
17.5%
17.8%
Region
1.1x
1.8x
Asia/Pacific (ex-Japan)
17.3%
12.2%
Price/Earnings Ratio (T 12 mos)
11.6x
18.4x
Japan
14.5%
22.2%
Dividend Yield
2.9%
2.9%
North America
4.4%
0.1%
Median Market Cap ($bn)
$1.8
$6.6
South America
1.1%
0.0%
0.0%
0.6%
Africa & the Middle East
TOP 10 COUNTRY WEIGHTINGS VS. THE BENCHMARK*
TOP 10 INDUSTRY HOLDINGS*
1 Food & Staples Retailing
15.8%
2 Metals & Mining
10.2%
Italy
United Kingdom
Japan
South Korea
Netherlands
France
3 Air Freight & Logistics
8.1%
4 Machinery
7.9%
5 Construction Materials
6.3%
6 Marine
5.4%
7 Multiline Retail
4.3%
8 Leisure Products
3.7%
9 Energy Equipment & Services
3.5%
10 Industrial Conglomerates
3.4%
Australia
Luxembourg
Denmark
British Virgin Islands
0%
5%
LCP IEV
10%
15%
20%
25%
M SCI EA FE
SECTOR WEIGHTINGS VS. THE BENCHMARK
LARGEST SECTOR OVERWEIGHT/UNDERWEIGHTS
International
Equity Value
MSCI
EAFE
Consumer Discretionary
12.4%
13.1%
Consumer Staples
19.8%
11.0%
30%
25%
Sector
Energy
5.8%
5.1%
Financials
5.0%
26.0%
Health Care
0.0%
11.4%
Industrials
34.1%
12.7%
Information Technology
0.0%
4.9%
Materials
16.5%
7.5%
Telecommunication Services
2.5%
4.7%
Utilities
1.1%
3.6%
35%
LCP IEV
M SCI EA FE
20%
15%
10%
5%
0%
Industrials
M aterials
Co nsumer
Staples
Info
Health Care
Techno lo gy
Financials
*Based on data available from MSCI and other publicly available sources.
Data as of March 31, 2015; GICS Sectors; Supplemental information supplements the LCP Composite Performance Presentation at end of document.
See accompanying GIPS® performance presentation for performance disclosures. Past performance is not indicative of future results. Data is subject to change on a daily basis.
1. For market cap, LCP uses total while MSCI uses free float-adjusted figures. LCP excludes outliers with (1) a price/book ratio greater than 5.0 or less than 0 and (2) a TTM price/earnings ratio
greater than 20.0 or less than 0. For dividend yield, LCP uses TTM while MSCI uses internally generated figures.
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1ST QUARTER 2015
INTERNATIONAL EQUITY VALUE
PORTFOLIO COMMENTARY
MARKET OBSERVATIONS*
Global markets were afflicted by rising political tension and
sagging growth. Further, there continued to be significant
currency volatility, partly driven by what has become a
routine response from the world’s central banks to lower
interest rates (or enact other stimulus) at the first signs of
trouble.
Greece’s standoff with Germany underscores the sometimes
vast and potentially irreconcilable differences between EU
member nations. Political observers have increasingly called
into question the long-term viability of that region’s
framework. Meanwhile, the euro continued its rapid decline,
prompting Switzerland to abandon its long standing peg to
the currency, which caused an unprecedented appreciation
in the franc.
Emerging markets underperformed developed market
counterparts in dollar terms. Of note, Brazil was hurt by an
assortment of news--political scandal involving statecontrolled energy company Petrobras, lackluster growth
(with a years-long trade surplus recently swinging to a
deficit), and increased austerity measures. In Turkey, after
lowering interest rates, policy officials expressed relatively
little concern over the depreciating lira, accepting it as
necessary medicine to reinvigorate the economy. Meanwhile,
in China, data continues to point to slower growth and
infrastructure spend, thus decreasing demand for
commodities and other imports.
The stronger U.S. dollar has significant implications for
emerging market companies, many of which have increased
dollar-denominated debt over the last several years. These
companies shortsightedly took advantage of low interest
financing but are now paying a great price, squeezed by
currency mismatches between revenues and costs. As we
continue to consider emerging market securities that have
fallen out of favor, it is especially critical to understand their
debt composition, among the other risks inherent to nascent
economies.
PORTFOLIO DISCUSSION*
The IEV strategy underperformed the MSCI EAFE Index in
the first quarter. We believe the portfolio is attractive on an
absolute, margin of safety basis and in relative terms, still
close to an historically high discount on price-to-book
against the EAFE Index. Our largest positions include
companies with asset-backing from real estate, cash, and
securities, net of debt. We continue to emphasize the
importance of good balance sheets (particularly for cyclical
businesses for which available capital can help withstand a
worsening environment) and operating models we think
have long-term sustainability. We have increased our
exposure to and continue to monitor opportunities in the
energy sector, favoring operators with broad expertise in
product and service offerings and with a diverse geographic
and customer mix. We believe the portfolio is well protected
from permanent capital loss, reflected in multiple metrics
including net debt-to-capital with the portfolio at about 1%
versus the MSCI EAFE and ACWI ex-U.S. indices at about
18% and 14%, respectively.
CONTRIBUTORS
A Europe-based oil refiner was the largest contributor,
helped by recovery in European refining margins, as a
stronger dollar made U.S. diesel imports less competitive.
The company operates one of the highest Nelson complexity
refineries in Europe, which we believe greatly reduces the
threat of closure as regional capacity continues to be in a
state of oversupply. Our Europe-based cement and
aggregates producers were also strong contributors, helped
by the prospect of continued industry consolidation and
falling energy costs. Both companies enjoy scale
advantages, are diversified geographically, and are gaining
market share as smaller competitors exit amid weak industry
conditions. Finally, a Japanese facilities maintenance
provider was an important contributor. We favor its
relatively strong cash characteristics, achieved through
recurring sales and a flexible cost base.
DETRACTORS
A U.K.-based multiline retailer was the biggest detractor,
hurt by a challenging macro environment and competition
from online retailers. Operating results can improve as the
company continues to undertake a more disciplined pricing
strategy, enhance its online offerings, and optimize its
logistics capabilities. A Europe-based express parcel
company was another significant detractor during the
quarter, hurt by a weak near-term outlook and continued
costs required for restructuring. The company enjoys scale
economics and has a net cash position and pension surplus.
Further, we believe there is significant value to be extracted
from a restructuring or divestiture of its emerging market
activities. It may be noteworthy that we closed the position
after quarter-end upon the announcement of an all cash bid
by U.S.-based FedEx, which approximated our estimate of
intrinsic worth. Finally, an Asian steel producer came under
pressure due to concerns over competition from foreign
steelmakers following significant currency movements. The
company is among the most cost-competitive steelmakers in
the world and we believe there is significant value in its large
and diverse portfolio of assets.
*Portfolio commentary is based on the International Equity Value composite. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory
clients. Past performance does not guarantee future results. Any securities mentioned are provided for informational purposes only and should not be deemed as a recommendation to
buy or sell. Portfolio holdings are subject to change at any time.
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1ST QUARTER 2015
INTERNATIONAL EQUITY VALUE
GIPS® PERFORMANCE PRESENTATION
Year
End
2014
2013
2012
2011
2010*
2009*
2008*
2007*
2006*
2005*
Total Firm
Assets
(USD)
(millions)
$3,718
$3,739
$2,920
$2,700
Composite
Assets
(USD)
(millions)
$222.9
$131.6
$32.7
$17.4
$10.7
$0.2
$0.2
$0.6
$0.3
$0.3
Number of
Accounts End
of Period
12
Five or Less
Five or Less
Five or Less
Five or Less
Five or Less
Five or Less
Five or Less
Five or Less
Five or Less
MSCI
EAFE
-4.90%
22.78%
17.32%
-12.14%
7.75%
31.78%
-43.38%
11.17%
26.34%
13.54%
Annual Performance
Results
Composite
Gross
Net
-9.98%
-10.28%
42.09%
41.47%
33.88%
33.29%
-11.53%
-12.06%
10.07%
9.41%
26.28%
25.05%
-34.96%
-35.55%
0.66%
-0.32%
26.32%
25.09%
14.65%
13.52%
Composite
Dispersion
1
N.A.
1
N.A.
1
N.A.
N.A.1
1
N.A.
N.A.1
1
N.A.
N.A.1
1
N.A.
N.A.1
Composite
EX-Post
Standard
Deviation
16.28%
18.77%
20.45%
23.33%
25.57%
23.21%
17.74%
10.12%
10.62%
N.A.2
Benchmark
EX-Post
Standard
Deviation
13.02%
16.25%
19.37%
22.43%
26.23%
23.58%
19.24%
9.43%
9.33%
N.A.2
*Firm assets are not shown for the periods prior April 1, 2011 while the portfolio manager was at prior firms
1
2
N.A. Information is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year; N.A. Insufficient period of time
Lombardia Capital Partners, LLC, previously known as Valenzuela Capital Partners, LLC, is an independent registered investment adviser. It changed
its name to Lombardia Capital Partners, LLC on July 17, 2006. This was solely a name change and the firm did not change its investment process or
personnel at that time.
Lombardia Capital Partners (LCP), claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented
this report in compliance with the GIPS standards. LCP has been independently verified for the periods of January 1, 2003 through December 31,
2013 by Ashland Partners and Company LLP. Verification assesses whether (1) the firm has complied with all the composite construction
requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present
performance in compliance with the GIPS standards. The International Equity Value Composite has been examined for the periods of January 1, 2004
through December 31, 2013 by Ashland Partners and Company LLP. The verification and performance examination reports are available upon
request.
International Equity Value Composite includes all discretionary International Equity Value (IEV) accounts that have substantially the same investment
objectives, techniques and restrictions. The IEV investment objective is to seek long‐term capital appreciation by investing in the equity securities of
non‐U.S. issues utilizing a fundamental, absolute, and bottom-up approach to investing. Companies considered for purchase generally have a market
capitalization of at least $1 billion at the time of purchase. Commencing October 1, 2006, the minimum account size for inclusion in the composite
was $75,000. The composite account minimum is $50,000 beginning June 7, 2012. Results are based on fully discretionary accounts under
management, including those accounts no longer with the firm. Beginning December 1, 2007, composite policy requires the temporary removal of
any portfolio incurring a client-initiated cash flow of at least 10% of portfolio assets only for the month of the cash flow; from October 1, 2007
through November 30, 2007, the policy was applied to accounts with a cash flow of 5% or more. Additional information regarding policies for the
treatment of significant cash flows is available upon request. Past performance is not indicative of future results.
Currency used to express performance is U.S. Dollar. Returns include reinvestment of all income and are net of actual brokerage commissions and
execution costs and any applicable foreign withholding taxes, without provision for federal and state income taxes, if any. Returns gross of
management fees do not reflect deduction of investment advisory fees. Actual returns will be reduced by investment advisory fees and other
expenses that may be incurred in the management of the account. Actual investment advisory fees incurred by clients may vary. LCP’s advisory fees
are described in Form ADV Part 2, and IEV investment management fees are generally: 0.75% on the first $25 million, 0.70% on the next $25 million,
0.65% on the next $50 million, and 0.60% above $100 million.
Fees are collected quarterly, which produces a compounding effect on the total rate of return net of management fees. For example, the effect of
investment management fees on the total value of a client’s portfolio assuming (a) $1,000,000 investment, (b) portfolio return of 8% a year, and (c)
1.00% annual investment advisory fee would be $10,416 in the first year, and cumulative effects of $59,816 over five years and $143,430 over ten
years. Net-of-fee performance is calculated based on the actual fees paid by all fee-paying accounts in the composite. For non-fee paying accounts,
the highest fee in the management fee schedule is applied. For the year-end 2003 through 2006, 100% of the composite consisted of non-fee-paying
assets. For year-end 2007 and 2008, 58% and 100%, respectively, of the composite consisted of non-fee-paying assets. For year-end 2012, 2013, and
2014 non-fee paying assets accounted for less than 1% of total composite assets.
Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. The IEV composite was
created on March 22, 2005. Performance results presented prior to April 1, 2011 occurred while the Portfolio Manager was affiliated with prior firms
and are linked to the composite performance results. The Portfolio Manager was the only individual responsible for selecting the securities to buy
and sell. The firm’s composite list and descriptions are available upon request.
BENCHMARK: The benchmark is the MSCI EAFE (Europe, Australasia, Far East) Index with net dividends. Performance returns of the indices are
used as a comparable rate of return based on the similarity of investment holdings with those of the Composite. The index is an unmanaged, free
float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and
Canada. The MSCI EAFE Index consists of 21 developed market countries. This index is often used as a benchmark for international equity portfolios
and includes dividends and distributions, net of withholding taxes, but does not reflect fees, brokerage commissions, or other expenses of investing.
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