“We have sold out of banks. It is not that we do not like banks, just that we bought the them for the specific reason that they had high reserves on their books. We felt many were over-reserved and that would come back as income, which it did and many now have little in the way of reserves.
“They had been expecting interest rates rises and without them it is really tough for them to make money,” he says. “It was a good investment for us but we have moved.”
Hench acknowledges that the macroeconomic environment plays a major role in the success of funds such as his, and at the moment the signs are good.
“We do spend a fair amount of time on the macro. It is very important to our fund because of the turnaround nature of the names that we buy. It is very difficult for these kind of companies to successfully turnaround against macro headwinds.
“When we look at data such as employment, energy prices and low interest rates, it is a pretty good recipe for improvement. We are really positive on the economy and of the view that the US is going to help lift the global economy, rather than the rest of the world pulling the US down.”
Hench is quick to admit fund performance has not been where he would have liked it to be recently, but he believes things are on the cusp of turning around.
“We have had a hard couple of years and performance has not been good,” he says. “Our style has been out of favour. The gap between growth and value names is as big as it has been since the internet boom around 1999 but those metrics will have to close up. If earnings come through you are going to get upward valuations in the kinds of stocks we buy.”
