Market was unforgiving, and doomsayers were everywhere. Good news became bad news, and bad news became good news. During market chaos, we got some exciting updates for you.
Funding your IBKR account have become much easier with Wise
Forget the hassle of transferring money via a conventional bank account. You can now fund your Interactive Brokers (IBKR) account via Wise (formerly Transferwise). It can be done entirely with a few clicks on your mobile phone; regardless of what your personal bank is. Once you authorize and link your Wise account with your IBKR account, you can transfer to and from your Wise account without leaving IBKR’s Client Portal. This feature is especially helpful for our non-U.S. clients.
Wise (
wise.com) offers a cheap way to send money from and to the U.S. (and globally). The exchange rates are one of the best you can find. You can fund a Wise money transfer in several ways, such as with a bank transfer, ACH, debit/credit card, or using your cash balance at Wise multi-currency account. The multi-currency account feature enables customers to open bank accounts in 50 currencies. Wise has partnered with local banks in many countries, so that you can own bank accounts "like a local" without even visiting those countries.
Is it safe to send large amounts with Wise?
Wise is regulated by many other regulators around the world. They have a transparent safeguarding policy and 2-step verification for every transfer. If you are interested in how they safeguard your fund transfer, read it here.
What are the benefits?
With IBKR-Wise integration, your deposits will be processed faster. You can fund your account with local currencies, such as Brazilian Real (BRL), Romanian Leu (RON), Malaysian Ringgit (MYR) and Indonesian Rupiah (IDR).
Once you authorize and link your Wise account with your IBKR account, you can transfer to and from your Wise account without leaving IBKR’s Client Portal. Easy peasy.
How easy is it?
Select Transfer & Pay > Transfer Funds.
Select Make a Deposit.
Select the currency of your deposit from the drop-down menu.
Select “Use a New Deposit Method”.
Choose “Bank Transfer via Wise” or “Transfer from Wise Balance” as a funding method.
Follow the on-screen prompts to link your Wise account with your IBKR account.
Feel free to contact us if you need help to set up your Wise account.
So, should you try it and boost your investment now? Absolutely!
Hidden gems in small cap stocks
When we write this special letter, it has become clearer that the fall of Silicon Valley Bank is a liquidity event, not a credit event. The Fed and Treasury prompt response prevented unnecessary market panic for now. However, it didn’t erase the fact that the heat was there; even a lot of comparison to 2008’s Great Financial Crisis were made. This SVB debacle shows how fragile the market sentiment is.
All of this happened on top of the prolonged confusion about the Fed’s hawkish stance and the looming recession. Not to mention the lurking geopolitical risk.
Looks like this is not the right time to invest?
We can eternally debate about ‘the right time’. What is sure is, in time of crisis, there are always opportunities to be found. This time, the opportunities are in the small cap and some overlooked niche market.
It is counterintuitive to think that small caps perform better than large caps in the bear market. The common perception is small caps are riskier than large caps. But historically it’s not true.
Since 1990, the furthest data we can get, small caps (S&P 600) outperformed large caps (S&P 500) in almost all instances where there was a significant drop (deeper than -5%) in stock market. That includes the two big crises: the 2008’s Great Financial Crisis and the early 2000s Tech Bubble.
In addition, small caps are really cheap now. Forward P/E ratio for S&P 600 is 13.1, within the low-end range historically.
The growth expectation for small caps is in the all-time low. It is a great setup for small caps if they are beating expectation from now on.
One reason small caps outperform large caps during market downturn is because small caps are more diverse. Further, small caps exposure to ETFs are relatively smaller than large caps. So, we can find pocket of growth within small caps even in weak macro-economic environment.
For example: the luxury sector.
Yacht: a neglected niche among (ultra) luxury stocks
Our long-time clients know luxury stocks are our forte. We have been investing in luxury companies since inception with exceptional results. We identified Ferrari (RACE.MI) when it was still valued as a mere automobile company, not a luxury one. Ferrari has been our top holding since 2016 with 700% return since our first buy call. We were also accumulating Hermes Intl. (RMS.PA) when the world was in Covid-19 lockdown. We argued that
a luxury heritage is a really wide moat.
Luxury stocks are often overlooked and misunderstood. Even though they are heterogeneous -ranging from the mass-market luxury to the ultra-luxury- they are lumped together in "consumer discretionary" sector under the GICS sector classification. Depends on the product, they are further classified as textile & apparel (Hermes), or automobiles (Ferrari), or others. This over-simplification, and the fact that their market cap is usually small, made them overlooked.
Luxury yacht companies are as overlooked as Ferrari in 2016. The median Price to Earnings Growth (PEG) ratio of the industry is about 0.3x, with median earnings growth of 27%. This implies 11.3x Forward P/E ratio. These companies have median ROE of 28% and EBITDA margin of 14.5%. With 40-50% debt-to-equity ratio, yacht companies' balance sheets are generally in good shape.
A deep dive report from Bain shows that
luxury yacht is one of the fastest growing among the various luxury products. Total luxury retail sales value was estimated about EUR 1.38 trillion. Luxury yachts, with a value about EUR 26 billion, grew by 18%, the fastest after personal luxury goods.
So why do yacht stocks have such a low P/E? One possible factor is because of the small market capitalization size. The biggest one that we found is less than $2 billion market cap! Compare this with personal luxury good company such as Moncler (MONC.MI) with around $16 billion market cap and 26x Forward P/E.
The other reason of low valuation may relate to the number of analysts who cover yacht stocks. On average, a yacht stock is followed by only two analysts.
We believe yacht makers deserve luxury valuation level. Surely, we must separate the wheat from the chaff. Although all the yachts have high pricing point (the cheapest ones are barely below $1 million), only a handful of companies in the industry that fulfill the definition of ultra-luxury: having both the heritage, tradition, and sizes that is called superyacht or megayacht only ultra high net worth can afford. For example, Picchiotti shipyards traces its history from Florence’ shipbuilding tradition in the 16th century.
Picchiotti is just one of several brands owned by The Italian Sea Group (TISG.MI), a company led and majority-owned by Italian entrepreneur Giovanni Costantino. Over the last 5 years, its revenues grew by 430% and EBITDA grew by 890% (more than 58% per annum). Yes, you don’t have to pick a side between “profitability or growth”, it could and should be both!
The Italian Sea Group operates on the market with the brands Admiral (renown for elegant and prestigious megayachts), Tecnomar (known for its sporty features), Perini Navi (excellence in the design and construction of large sailing yachts), and Picchiotti. The Company also has a business unit named NCA Refit that manages the maintenance and refit services for large yachts. Its well known shareholder and partner is Giorgio Armani, putting the company in a unique positioning in terms of design and quality. The price tag of its 20-meter Tecnomar Lamborghini (yes, in partnership with that brand) is $3.5 million. Their megayachts (such as the 55-meter Admiral yacht you are seeing below) are usually priced above $30 million.
We deem yacht as the “epitome of the ultra luxury” and believe there are multi-bagger opportunities for their stocks.
For healthy yacht companies, there are multi sources of growth. First, the yacht's demand is growing fast. People are shifting from cruising to yachting. Yachting is more stylish and personalized. Some yacht companies still experienced positive sales and profit growth even during covid crash in 2020, compared with many other industries. Second, the current high interest environment may negatively affect companies with fragile balance sheet (i.e., too much debt). This creates opportunities for inorganic growth (growth by acquisition) for those who are financially stronger, such as the yacht makers.
From an investor perspective, yacht stocks are prone to re-rating. Valuation is dirt cheap compared to other luxury stocks because of relatively small market cap size and under-followed by analysts and fund managers. As earnings are growing fast, the market cap will soon follow and more analysts will cover the stocks.
We have built a meaningful position of yachts in our clients’ portfolio and will continue to do so. What are you waiting for?
