Hibernian manages €8 billion of assets across a broad base of funds. Its Irish equity pension fund holds €700m in assets.
Investment philosophy
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The Irish Equity Pension Fund aims to beat the Iseq total return index and its peers over the long term.
“We favour firms that exhibit above-average earnings-per-share growth, a track record of delivering forecast earnings, improving margins and strong market shares in their chosen businesses,” says Kearney. “We put lots of resources into research on Irish companies, particularly small caps, as they are under-researched by global houses. That gives us a competitive advantage.”
Performance
According to Mercer, the HIM Irish Equity Pension Fund is up 4.3% per annum over the past three years. The peer average was 1.7% per year, the Iseq Total Return Index was -0.2% and the FTSE World Index was -8.1% per year.
Over the past five years the figures are less impressive but still positive for HIM. The Irish Equity Pension Fund is up 3.2% per year, the average of peers was 1.1%, the Iseq 1.6% and the FTSE -2.3%.
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Buying and selling
“I have increased holdings in CRH and Bank of Ireland recently. CRH has double-digit earnings growth, the consensus forecasts are too light and the ratings don’t reflect these earnings prospects,” says Kearney, adding that CRH is trading at a discount to the market.
He also believes that Bank of Ireland is trading at a discount, in this case about 25% to the rest of the market. “Despite the recent rebound in financials, we think the sector is undervalued because investors are concerned about increasing competition and margin attrition in the Irish banking sector. We think that is overplayed. It is not apparent that Bank of Ireland’s competitive position is eroded in any significant way and it continues to benefit from improving economic conditions in its two main geographic areas, Britain and Ireland.”
Kearney sold the fund’s holding in Glanbia recently, because he believes its valuation is stretched. “It’s a worthwhile endeavour but there is still a lot to do and it’s a company with a patchy track record, to be fair.”
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Outlook
Although the Irish market has performed strongly so far this year, Kearney attributes this entirely to the growth of Elan, up 230% in the year to date.
“The rest of the market is totally left behind and undervalued,” he explains.
“It trades at less than 13 times earnings, which is very cheap in the international context and versus its long-run average rating. We can see a 10% upside between now and year-end and expect to participate in that.”