The Vilhena Maltese Opportunities Fund, formerly known as the La Valette Malta Fund, was the first collective investment scheme in Malta that provided its investors with access to a well-diversified portfolio of securities, which are predominantly listed on the Malta Stock Exchange. The fund has delivered excellent results for its investors since its launch 25 years ago on June 6, 1996.
As at the end of May 2021, the fund’s share price has appreciated by 367 per cent, which means that since its launch date, the fund has returned over six per cent per annum to its investors. The fund has over time supported locally-listed companies, most on their first public offering of equity or bond launch and is relatively still very popular with investors. Today, the Vilhena Maltese Opportunities Fund has a fund size in excess of €25 million.
Over these 25 years since its inception, the fund endured several challenges and opportunities, ranging from the 2008 financial crisis, the 2012 sovereign crisis and, more recently, the COVID-19 pandemic, which arguably presented the biggest challenge over the 25-year span. However, every challenge presents an opportunity, and the fund focuses on seizing them.
In order to identify the growth potential that exists within locally-listed companies, the fund manager meets with senior management and analyses in depth the fundamentals and accounting information. Additionally, the fund also looks at the valuation metrics to ensure that the fund invests in opportunities that are attractive.
To further maximise its shareholders’ returns, the manager looks at the macroenvironment, that is, the Maltese economy. During the recent global coronavirus crisis, most sectors were impacted, particularly tourism. Our strategy during the pandemic was to avoid those sectors that were severely impacted, while focusing on those which benefitted from increased demand. We try to invest in opportunities that would maximise returns during a particular economic cycle.
Malta’s economy is expected to rebound by 4.6%
As the local investor is very dividend- and income-oriented, the fund provides the perfect blend in receiving dividend and income payments, while achieving capital appreciation. During the pandemic, several Maltese companies opted not to distribute a dividend given the detrimental impact that the pandemic had on their profitability. Additionally, banks and insurance companies were restricted from distributing dividends. However, as Malta’s economic recovery is slowly under way, dividends are expected to resume gradually, which would be an added return to the fund’s shareholders.
Additionally, despite the fund’s bias towards local securities, it also provides a small exposure to foreign securities. This provides the investor with a platform to take advantage of any momentum in global markets, like in recent months, whereby global markets started recovering before the local equity market.
Based on the latest International Monetary Fund forecasts, the international and local economies are expected to grow and, therefore, encourage further investments. As the Maltese equity market is considered to be cyclical in nature, meaning that it tends to do well when the economy is improving, Malta’s economy is expected to rebound by 4.6 per cent, one of the highest GDP growth rates in the euro area.
In fact, 74 per cent of companies listed on the Malta Stock Exchange are cyclical compared to the circa 55 per cent of the European Index. This shows that as economies are gradually recovering, the Maltese equity market is expected to keep improving.
We took a defensive stance during the pandemic that is preferring non-cyclical securities. However, as the first signs of recovery started to intensify, the fund started shifting its exposure to the cyclical side of the market, while also taking advantage of the attractive valuations that existed within these securities.
History has taught us that the world is constantly evolving, and it is up to us to adapt, by picking those stocks that offer the best growth potential and maximise shareholder returns. In addition, although it is almost impossible to time the market, the fund tries to anticipate the market and invest in those securities that are considered attractive from a risk-reward perspective.
Additionally, similar to the strong rally that technology stocks had over the past decade, the fund tries to identify those industries that would be considered as long-term winners. In fact, companies that are considered to be ESG (environment, social and governance) friendly are touted to be among the future winners given the greener push being imposed by world leaders.
It is imperative that the fund monitors and adapts to the economic cycle as several opportunities might arise during a particular cycle. The evolution of the Maltese market would be another important contribution to the success of the fund.
The writer and the company make no guarantees, representations or warranties and accept no responsibility or liability as to the accuracy or completeness of the information contained in this document.
Stephen Sammut, Investment specialist, BOV Asset Management Ltd