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Q&A with Haydar Acun
We’re back, with our very first Q&A and in our inaugural session we’re glad to have Mr. Haydar Acun with us. Our guest needs no introduction for those with even a modicum of knowledge of the Turkish fund management industry. He is a successful fund manager in Turkey, the founder of Marmara Capital asset management company and he manages two equity funds (namely, MAC mutual fund, and MAS hedge fund). Mr. Acun frequently and deservedly drew attention with the returns of his funds in recent years and his portfolio management style based on value investing.
We’re grateful that he accepted to sit down with us.
Have a nice read!
Galata Chronicles: Could you please tell us about yourself, and Marmara Capital briefly? When did you start working in this sector? When and how did you decide to establish Marmara Capital? What about your funds?
Haydar Acun: Around 30 years ago I started my career as a security analyst at one of the local brokers in Turkey then moved to London to work for Schroders Securities covering the Turkish market. Between 2006-2014 I founded and managed Sardis Securities, a value-driven boutique brokerage firm. Finally, I am managing Marmara Capital since 2015.
We launched our MAC fund in 2014 and our second fund MAS in 2021. As of now, MAC is the largest equity fund (without limitations of an index fund) in Turkey with the highest number of retail investors (around 45k). Not only that MAC is the best fund in terms of performance both over the past 3 years and 5 years, outperforming the market nearly by 5 times since its launch.
GC: Why did you decide to follow this path?
HA: Early in my career, I realized that I want to be on the buy-side rather than the sell-side, for a couple of reasons: I like picking up stocks, which I believe I am good at. Success and failure are easily observable and can be measured quickly and clearly, and how well you do is entirely up to your own decisions, and you are not at other people’s mercy.
GC: As a portfolio manager, what is your investment strategy for the Turkish equity market? Do you trade a lot in your fund, or do you have a long-term perspective, for example? What learning stages and experiences did you go through until you arrived at this strategy? Who are the investors you are most influenced by in the field of portfolio management?
HA: Our investment strategy is to buy and hold stocks trading at discount to their intrinsic values. This usually involves buying unpopular stocks during “unpopular” times, so we are, in a sense, contrarians.
Our portfolio turnover rate is well below one time. I have been a Ben Graham admirer for a long time and trying to do his cigar-butt investing but these days I’m trying to adapt more to the dictum “buy good businesses and do not be overly concerned about their valuations”. In my career, I have met many great investors personally, but no need to say Charlie Munger and Warren Buffet are at top of the list.
GC: Can you explain your value investing approach and why you believe it is an effective strategy? And will it outperform in the future, given the deeply negative real interest rates in Turkey, a factor that was identified by Howard Marks in his latest note as a key reason behind value underperforming in the US after the global financial crisis of 2008?
HA: Well, to be frank, we think value investing is the only way of investing. What is “investment” after all? Laying out money you saved today to earn a satisfactory return in the future. In the end, the value of anything depends on its cash generation capability and as Ben Graham puts it, a stock market is a weighing machine in the long-run, so, this fact about value asserts itself sooner or later. Stocks of companies generating good rates of return will eventually outperform the rest. Despite deeply negative rates in Turkey that was in place for more than a year, our investment approach worked, and we outperformed using our strategy, and I believe temporary anomalies in the macro picture can only create temporary setbacks but in the long-term the result will not change.
GC: How do you identify undervalued companies in the Turkish equity market, and what factors do you consider the most when making investment decisions? Do you use any systematic approaches or is it purely discretionary?
HA: We filter around 100 investable companies regularly in terms of corporate governance, liquidity, etc. If we see a price anomaly, then we take a closer look. We pay a visit or sometimes we invest without meeting the company. Investing is making decisions with incomplete information. There is no formula, and we are flexible about how we value a company. After all, I think it is a simple question: If you had inherited a large wealth, would you buy this company as a whole or not?
GC: As a long-only investor, how do you manage risk in different market regimes?
HA: For us, what constitutes risk is not the Beta of stock [the relationship between the variation in a stock’s price and the variation in the overall market price – GC], or how volatile a stock is. The actual risk is if you’re wrong in your investment convictions and if you are overpaying for a stock. We go ahead and try to buy more if something got cheaper. Would you stop eating hamburger if the price is halved? Probably not, right? So, we do not use stop-losses and neither do we believe in the concept.
GC: You have been known to caution investors from reading too much into past returns. In your opinion, how long should it take to evaluate whether a stock or fund investment is successful or not? How should investors tell if success should be attributed to fund or company management skill vs. luck?
HA: I think a minimum of 3 to 5 years is needed to conclude if a fund is successful or not. I think the most important thing in evaluating a fund is to look at how that fund’s performance is created and not the performance itself per se. What kinds of risks does it take? The principles and methods pursued are more important than the results. Alignment of the interests of the investor and the fund manager is also crucial. After all, our business is full of conflicts of interest.
GC: As Howard Marks emphasizes frequently, there is an “oscillation in securities markets between euphoria and depression; between celebrating positive developments and obsessing over negatives; and thus, between overpriced and underpriced assets.”. Of course, this weakness in human nature creates great opportunities for intelligent investors. Would you like to share with us your experiences in this respect? How do you stay calm in times of panic?
HA: Humans, unfortunately, are not prone to change, so fear and greed are and have always been the main motives that drive the markets. Given this fact, being a contrarian requires staying calm and keeping an eye on the fundamentals, the “value”, of the businesses rather than mundane share price movements. Investing is largely a character business above all.
GC: What do you think about the differences between developed markets and emerging markets in terms of portfolio management? What are the main differences? In terms of portfolio turnover rate, for example? Can you discuss any challenges or obstacles you have faced while implementing a value investing strategy in the Turkish market specifically, how have you overcome these challenges? Are there any advantages?
HA: Emerging markets are, at their core, inefficient markets. That’s why it is easier to make money in EM. There are a lot of day traders that trade on what’s basically noise, and this creates volatility, and volatility means opportunity. In developed markets, let’s say in the UK, probably a peer group fund, compared to us, has a significantly less turnover rate but one should compare apples to apples. In a market like Turkey where there are more frequent and bigger swings in the market and where stocks overshoot or undershoot regularly, it is normal to have a higher portfolio turnover rate, for example.
GC: As an experienced portfolio manager, what advice would you give to investors looking to invest in the Turkish equity market for the first time? Do you think that are there any advantages to investing in funds rather than picking stocks for foreign investors as well as for residents?
HA: Not everybody has the capacity, in terms of financial literacy or psychological mindset, to be an investor, so for those newcomers, I would suggest they consider investing in funds rather than directly buying stocks. You should not own a stock unless you know why you own that stock, and you should have your own investment convictions.
GC: Can you discuss any recent trends or changes in the Turkish equity market that investors should be aware of? Which sectors or stocks do you think will stand out in 2023? What are your expectations regarding Turkish markets?
HA: We do not make macro forecasts and try to guess where the market will go. So, this is just wishful thinking on my part, but I hope to see a better market with more foreign participation in 2023. Turkish investors started to discover the fund investment world and I believe this trend will continue.
GC: You organized a meeting day with investors this year. How did it go? Do you plan to continue?
HA: It went well. It was the first of a kind, and we plan to do it every year in order to improve investment awareness among local investors.
GC: What are your future plans at Marmara Capital? You recently announced that you will raise the investment ceiling in your funds. Might your fund getting larger cause issues in micro and small-cap allocations?
HA: We will keep doing what we do. We do not want to be too big. We want to be the best and enjoy our life, create value for our investors and shareholders. We increased the number of funds shares available because of high investor demand. The Turkish market is big, and liquid and I believe we can manage more money but the moment we feel our performance is in jeopardy due to our size then we can limit the new investors.