For the first time since the strategy’s inception, the portfolio’s return on capital exceeds that of the global benchmark.[1] At the same time, its valuation remains highly compelling: the free cash flow (FCF) multiple is 40–50% lower than the benchmark, translating to an 8% FCF yield based on our estimates of sustainable earnings.[2]
While we have previously highlighted the disconnect between the portfolio’s intrinsic value and its market price, today’s valuation stands out as particularly attractive. It comes following a period of weak performance. Capturing such anomalies requires a contrarian mindset. In value investing, there is no free lunch: accessing deeply discounted opportunities demands rigorous fundamental analysis that challenges prevailing market narratives. We need to earn the right to be contrarian.
Beyond Observation: The Role of Deep Analysis
A close friend in the industry described the distinction between “Analysis vs. Observation” as central to why some active managers might ‘deserve’ to earn superior risk-adjusted returns. This framework breaks down into four levels:
We believe that high-conviction positions with asymmetric risk-reward profiles are earned by going beyond observation and observation+. It is through deep analysis and thoughtful forecasting that we identify opportunities others overlook.
Conviction and Behavioural Discipline
To this framework, we would add a fifth element: Courage. The best opportunities often emerge after drawdowns, yet these are precisely the moments when behavioural biases make it hardest to act.
For value-oriented investors, the most difficult decisions typically arise when existing investments have either performed exceptionally well—or very poorly. While it is a mathematical truism that the most damaging decisions in long-only strategies often involve selling winners too early, the most psychologically challenging decisions usually follow sharp price declines. Maintaining discipline and conviction in these moments is critical.
A useful analogy comes from golf. Scottie Scheffler, the world’s number one golfer for over 100 consecutive weeks—a feat surpassed only by Tiger Woods—is often praised not just for his technical skill, but for his mental resilience. His ability to move on from a bad shot and fully commit to the next one is what sets him apart.
In investing, this means trusting our analysis and forecasts, and allocating capital accordingly—even after setbacks. We are not advocating blind doubling down. Momentum is a powerful factor. But when our research leads us to a different conclusion than the market’s, we must be willing to “commit to the shot.”
Case Studies: High-Conviction Holdings[3]
Howden Joinery (UK kitchen & joinery supplier | 3.3% weight)
Consensus forecasts imply just 8% volume growth for Howden over the next five years.[4] However, returning to mid-cycle UK kitchen market installation volumes would require growth of over 20%[5] and Howden is typically a market share gainer. Recent results from peers like Wickes suggest that volume recovery is already underway.
Each percentage point of volume growth adds approximately 0.4% to operating margin due to operational leverage.[6] Meanwhile, capital expenditure is expected to decline as Howden exits its investment phase. Based on normalised volumes, we forecast a 10% FCF yield.[7] Notably, management has been buying shares in the open market.
Avantor (US life sciences products & services | 3.6% weight)
Our recent re-underwriting of Avantor’s investment case identified five significant, underappreciated developments:
We expect a 7–8% FCF yield this year, expanding to 10–11% through self-help and end-market recovery. Long-term, we see potential for high single-digit to low double-digit compound growth.[11]
Conclusion
Periods of weak performance often sow the seeds of future outperformance. By combining deep analysis with behavioural discipline, we aim to capitalise on the valuation dislocations we have identified — backing our convictions when it matters most.
Activity
We bought no new holdings, nor did we exit any in May.
We increased our weighting in recent purchase 4imprint following a trading statement which supported our investment case, and Howden Joinery, Certara, Avantor, and Kansai Paint following additional analysis and share price weakness. We reduced our weighting in DBS, Bank of Ireland, Intercontinental Exchange and McKesson after strong performance closed the gap to fair value.
Performance
The Fund returned +3.4% in May. In comparison, the MSCI ACWI index returned +4.7% and the MSCI ACWI Value +2.3% (all in GBP).[12]
DTS Corp (+19% in GBP) was the largest positive contributor. It released FY3/25 results which comfortably exceeded analyst expectations and the company’s own guidance, growing revenue +9% and operating profit +16% year-on-year. DTS also released its new Medium-Term Plan, targeting annual operating profit growth of ~9%.
Sentiment towards life sciences, biotech and derivative businesses, such as John Wiley & Sons (-11%), which publishes academic journals, and Certara (-19%), which provides software and services to improve drug development efficiency, remains in the doldrums. Concerns centre around the impact of grant reductions and lay-offs at the FDA and NIH in the US. Certara ‘round-tripped’ for the second time this year following strong performance last month. Fiserv (-13%) fell further after comments from the CFO at a conference that its Clover merchanting business, which missed expectations in Q1, would see similar volume trends in Q2.
[1] Source: UBS HOLT, River Global Investors. Data to 6 June 2025. Global benchmark is MSCI World. Return on capital measure is the weighted aggregated Cash Flow Return on Investment (CFROI) less Excess Cash during the last financial year.
[2] Source: UBS HOLT, Bloomberg Finance LP, River Global Investors. Data to 6 June 2025.
[3] The original investment cases for Howden Joinery and Avantor were published in the Q1 2025 and Q1 2025 investment letters, respectively.
[4] Source: Bloomberg Finance LP, River Global Investors. Data to 6 June 2025.
[5] Source: Redburn.
[6] Source: Howden Joinery investor relations.
[7] Source: River Global Investors. Data to 6 June 2025.
[8] Source: Bloomberg Finance LP. Data to 6 June 2025.
[9] Source: Bloomberg Finance LP. Data to 6 June 2025.
[10] Source: Wells Fargo.
[11] Source: River Global Investors.
[12] Fund: B share class (GBP), midday to midday pricing. Benchmark: close-of-business to close-of-business pricing. All performance data from Bloomberg Finance LP.
KEY RISKS
The value of investments and any income generated may go down as well as up in response to general market conditions and the performance of the assets held, and is not guaranteed. An investor may not get back the amount originally invested.
Past performance is not a reliable guide to future results.
Changes in exchange rates may have an adverse effect on the value, price or income of investments.
There is no guarantee that the Fund will meet its stated objectives.
The movements of exchange rates may lead to further changes in the value of investments and the income from them.
There is a risk that any company providing services such as safe keeping of assets or acting as counterparty to derivatives may become insolvent, which may cause losses to the Fund.
For professional investors only.
Capital at risk.
For more information about the fund and how the fund is positioned, please visit our fund centre below:
For professional investors only.
This document has been prepared by River Global Investors LLP (“RGI”). RGI is authorised and regulated in the United Kingdom by the Financial Conduct Authority (Firm Reference No. 453087) and is registered in England (Company No. OC317647), with its registered office at 30 Coleman Street, London EC2R 5AL. The value of investments and any income generated may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. Past performance is not a reliable guide to future results. Changes in exchange rates may have an adverse effect on the value, price or income of investments. This article does not constitute an investment recommendation and should not be used as the basis for any investment decision. Opinions, estimates and projections in this article constitute the current judgement of the author as of the date of this article. Please note that individual securities named in this article may be held by the Portfolio Manager or persons closely associated with them and/or other members of the Investment Team personally for their own accounts. The interests of clients are protected by operation of a conflicts of interest policy and associated systems and controls which prevent personal dealing in situations which would lead to any detriment to a client.
