The duo had previously lamented the amount of cash in reserve in the Artisan Global Value, which stood at 13.4% at the end of May, but said they were left with little choice over June and had to increase that weighting to a new high of 14.1% fund.
‘Our cash levels are at record high levels, reflecting a generally unattractive valuation environment. It is not our intention or our preference to hold large levels of cash as we believe that over time it is a wasting asset in real terms,’ the managers said in their quarterly round-up.
‘However, in the absence of attractive reinvestment opportunities we will maintain our discipline until our research process uncovers opportunities that meet our return hurdles.’
The pair said they had only added one meaningful position to their fund over the past three months, a marginal position in banking firm Citigroup Inc.
‘After having effectively gone bust during the financial crisis it has cleaned up its balance sheet, raised capital and liquidity levels and significantly restructured its operations.’
‘We believe that Citi’s capital position will improve even further from current levels, which will put it in a position to return significant excess capital to shareholders.’
O’Keefe and Samra said part of this bullishness was driven by the fact Citi retains non-core assets from the financial crisis, which means the company must hold significant capital reserves to offset any risk here.
More capital on hand
Furthermore, the two managers said Citi is set to improve its capital position even further as its deferred tax assets will be run down and converted into regulatory capital over time.
‘Like all major banks in the world today, Citi faces a seeming water torture of regulatory costs, regulatory pressure and political interference. It is our belief, however, that these issues will ease over time.’
‘Moreover, at about 85% of tangible book, we don’t believe the positives in terms of capital return or earnings power are adequately reflected in the price.’
Financials as a whole represent 32.6% of the fund at present, which compares to a 21.3% weighting in the fund’s index, the MSCI ACWI TR.
While they added Citi, the two managers said they exited two holdings fully over the past three months, energy firm Total and also Coal India. Both stocks were deemed to have reached the pair’s estimate of intrinsic value.
The Artisan Global Value I USD Acc fund returned 57.9% in US dollar terms over the three years to the end of June 2014. Its benchmark, the LCI S&P 500/MSCI World (50:50), rose 48.9% over the same period.