366. Diamonds in the dust: finding value where others don’t

11 September 2025 (pre-recorded 2 September 2025)

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[INTRODUCTION]

Darius McDermott (DM): I’m Darius McDermott from FundCalibre, and this is the Investing on the go podcast. I’m delighted to have Sean Peche, who’s the manager of the Ranmore Global Equity fund – which is Elite Rated – join us on our podcast for our first time. Sean, good morning and thank you for coming in.

Sean Peche (SP): Good morning Darius, and thank you very much for the opportunity to be here.

[INTERVIEW]

DM: So a number of our listeners will be familiar with your Schroders and your Blackrocks. Introduce Ranmore to our listeners. It is a lovely business. We’ve known you for just over a year, but your track record is exceptional and no doubt we’ll touch on that later, but introduce us to Ranmore as a business.

SP: Yeah, thanks Darius. So we are a UK FCA regulated fund manager and we run only one fund, and that is the Ranmore Global Equity fund, which is an Irish UCITS. And we just look around the world no matter where the places are to find decent value opportunities. And so we just try to buy companies that we think are trading below fair value and when they get to fair value, we sell them and we look to reinvest those proceeds elsewhere. And that’s what we want to do. And that’s what we’ve done for some 17 years. And that compounding of wealth is our objective. You know, we want to compound people’s wealth in real terms.

DM: And maybe just touch a little bit more about what you mean by value. I think I have a fair understanding of what value might mean to me. And in my job I meet lots of managers who say they’re value investors. What does it mean to you?

SP: So what it means to us is buying something for what we think is less than it’s worth. And of course no fund manager out there in the world is saying what we do is we buy companies for more than they’re worth. Okay? But but in the words of the late Sir John Templeton, you can’t buy something that is popular and do well over the long term.

And so we are looking for the diamonds in the dust. And maybe here’s a an interesting analogy just to put it into, you know, common speak, but if you take property, okay, if you’re gonna buy a property from a developer who’s in the industry, they’re gonna squeeze every last dollar or pound out of the price selling price of that property. And so that means if you pay a high price, you are going to get a low return when you eventually sell that property.

Many years ago, I met a guy in the gym when I first got here to the UK, this was in 2001 or so, and he told me he was an invested in property. And I said, well, how do you make any money at these low yields? And he said, what he does is he buys properties on auction where the auction is scheduled for a Sunday in the afternoon when it’s raining. And I said, well, why on earth you doing that? And he said, well, because no one wants to be there. It’s the weekend, it’s after lunch. People have had a few pints down at the pub. It’s raining, it means there’s no competition. And he was buying.

I said, what kind of yields are you getting? He was buying these properties of 30% yields. So everybody else is buying properties from the developers at 2% and 3%, and here the guy is going where other people don’t want to go. And because of that getting a great deal. And that’s what we look for – a great deal.

DM: So you’ve described your, in really nice layman’s terms, what value means to you, but how do you use that value, focus and momentum and technical factors to drive that philosophy at process into the returns that you’ve managed to deliver?

SP: Yeah, so, I like technicals and charts and that’s nothing unique. I mean, it seems fairly unique when I speak to people. But you know, and so Anthony Bolton, he devoted a chapter to charts in his book, Investing Against the Tide, Fidelity have a chart room. Now, what charts tell me is it helps me identify and understand the supply and demand dynamics, okay? Because when a company is fallen out of favour, you want to buy at the right time because was buying at the right time, that means you investing as little as you need. So momentum is useful in terms of identifying areas that are unloved.

And I’ll give you a great example. There was the late Peter Kundal from Canada. He was a famous value investor. What he used to do every year is he would look at the markets that have underperformed the most and he would then go and establish an office in those countries. And if you look late last year, we do this so late last year, the worst performing markets were Mexico, Brazil, and South Korea. And South Korea was out of favour because the president imposed martial law and it was just Asia was out of favour and it was close to China that many investors had called un uninvestible. Well, there were some fabulous opportunities. And so if you can find the diamonds in the dust in an environment where other people, for whatever reason are not looking, that’s what you wanna do.

DM: Yeah. So I know you wouldn’t describe yourself as a big macro investor, but to be an investor you have to have opinions and at least observations. There does seem to be a disconnect between politics, which feel uncertain, particularly in the UK growth, which appears weak and stock market, particularly, again in the UK but not specifically in the UK, keeps going up. So markets keep going up, we’re all scratching our heads a little bit.

And again, I know you’re not a bond investor, but you know, the amount, the credit spread, which is the amount over the local government bond you have to lend to a company for the yield that they should offer you is at record lows all seems like the markets are telling me everything’s absolutely hunky dory, yet maybe it doesn’t look. So what’s your view on that?

SP: Yeah, I think that’s a very interesting point. There does seem to be a little disconnect and I think there’s some reasons to be concerned and some reasons to be cautious. And perhaps at the moment the rising bond yields around the world are a concern. You know, for example, in Japan, the 10-year and the 30-year bond yields are are breaking out into 20-year highs. And they used to talk about shorting the Japanese government bond as the widow maker. It was a terrible trade. Everyone said these low rates can’t last forever, but they seemingly lasted for a lot longer than people thought, and now they’re breaking up. So you’ve got rising. And then what does a higher yield mean? It just means the cost of money is more.

And so we have had, because of quantitative easing after the global financial crisis, the price of money was very low. And so you had huge amounts of speculation. You had asset prices, many of these top companies going to crazy levels. That’s why you had the likes of Peloton and Beyond Meat and all these kinds of speculative companies getting up to crazy levels and now falling whatever it is, 95%. [DM: Yeah.] And so you want a price to of money because that means you’re not going to speculate, now the price of money’s getting more expensive.

So I think we’ve gotta be careful and look, that’s good for us in every crisis yields opportunities. When we had the tariff concerns in April and a lot of stocks fell well, we sell when we think prices are full and we were selling in late March and we were buying when they were down 25%.

And, you know, compounding like that makes a difference over time. So we the one problem in a crisis is that in a crisis, people sell what they own. And right now everybody owns the same things. They all own the Mag7 and everyone seems to own Bitcoin. They all own the large caps, they all own S&P 500 ETFs. And that’s a concern. So when one of these risks comes to pass, the challenge is if you own the same stuff that everybody else owns, you’re gonna get caught in the rush for the exits.

DM: Is that throughout the 17 years of running this fund, is that how you’ve maybe, we intuitively think value underperforms in difficult markets, more cyclical, more leveraged businesses, for instance. How have you found the downside on your strategy, not just value investing per se? Is it well, I buy the stuff cheap in the first place, Darius, so I’ve got a half a head start. Or is it because I don’t own the same stuff that everybody else owns in that trade? I’m not just not talking now or, but you’ll have seen a number of down cycles. GFC, we’ve had COVID, European Financial Crisis, let’s trust debt yields into previous spikes. But but not as high as they are today.

SP: No, that’s right. Look, if I liken this to sailing, if you’re out sailing and there’s a storm, you’re going to get wet. The key is don’t you know, is the boat gonna sink? Our boat’s not gonna sink. Okay. So that’s, we are gonna get wet. [DM: Yeah.] And getting wet is great because it gives you an opportunity, that everybody else is getting wet and gives you an opportunity to capitalise off maybe some you know, other panicking, et cetera.

So, but what’s interesting is each time it’s a little different. So in April it’s always different, it’s always different, always different. You know, in April what happened is people were selling the stuff we didn’t own and buying the stuff we owned. So in fact, we actually went up at a time when everyone else was falling. [DM: Yeah.] In the pandemic. Well, everything was getting hit, but you know, so you must expect to get a little bit wet. [DM: Yeah.] But the key is don’t let the boat sink.

DM: And do you, and I’m gonna ask you where you find opportunities next, but do you run cash? Do you sort of sit there and go, maybe my opportunity set isn’t as rich as it was six months ago or after an event like liberation day, or you’ve already touched on the technicals of going to last year’s bad markets to look for value? Or do you think actually I’m just gonna keep 3%, 5%, 7% cash, or you’ve generally fully invested knowing that you have that valuation support if nothing else?

SP: Well, no. So we try and be fully invested. But, what you find, which is quite common in the markets is that if for many fund managers, they won’t sell something unless they’ve got something to buy. We see those as two separate decisions, right. If European banks are fully priced in our view, we will sell them. We are not going to hang on waiting until we found something to buy. If it means we sit with 10% cash for a couple of months, we sit with 10% cash for a couple of months, but we see them as independent decisions and you know, so it just keeps it clear.

DM: Okay. So then where we’ve already described that at a market level, mostly everywhere, not everywhere, but equities are expensive. Bonds are expensive. Where little old Ranmore finding value today? If anywhere? Yeah.

SP: Well interestingly, some equities are expensive, but not all equities are expensive. And so if you look at something like an EV to EBITDA, which, and the reason I prefer an EV (Enterprise Value) to EBITDA(Earnings Before Interest, Taxes, Depreciation, and Amortization) over…

DM: What is that measuring?

SP: So that’s Enterprise Value. So there’s two ways to look at a company. You can say what’s the value of the company? That’s the market cap. It’s the number of shares times the price. That’s the market cap. [DM: Okay. Yeah.] But and so when you are using price to earnings and say, well what’s the market cap? That’s the price divided by the earnings. The problem is that doesn’t take into account the balance sheet.

And so some companies, you’ve got two companies. One’s got lots of cash, one’s got lots of debt. But they might have the same market cap. Okay, well we prefer the ones with cash. And so enterprise value is saying, well, hang on, you know, the business is worth a hundred, but they’ve got 40 of cash. So what are you effectively paying? I’m paying 60. So, so I prefer enterprise value.

Now if you look at a lot of US companies, they have, especially even the Mag7, the perception is, oh, well they’ve got loads of cash in the balance sheet. No, they’ve spent that cash, they’ve bought back shares and now they’re spending it on AI CapEx. So the balance sheets are a lot weaker. Now I’m talking about the, you know, just across the board because the interest rates have been low, so people have borrowed money to buy back their shares. And also they’ve been keen to do that because they’ve all got share options. So they want the share price to go up. So they’ve levered the company’s balance sheets to buy back the share. So you’ve got lots of debt in many of these companies, whereas in Japan and places like Korea and some Hong Kong listed companies, they’ve got lots of cash.

So let’s strip out and say, well, how much are we effectively paying for these businesses?

So if you look at our enterprise value to earnings basis or EV/EBITDA, you’re paying a similar price for many of the Asian markets as you were back in, you know 2009. The difference is large US growth companies. So US and especially the large companies, you’re paying 36 times earnings for Walmart where earnings declined last quarter. You’re paying, you know, 50 times for Costco where earnings are basically growing low single digits. So yes, great businesses, but way overpriced.

Whereas small companies, because there’s been such a move into large passive funds, the S&P 500 and that, how have they been funded? Well, they’ve been taking money from the fund managers and the investors have been, you know, redeeming from their fund managers and putting them to the S&P 500 ETFs. Those fund managers having to be sell their stocks, many of which are smaller companies. So smaller companies are very attractively priced in many cases. And so you can buy these smaller companies that are ignored on low single digit multiples. And it’s because no one’s buying them.

DM: And your strategy does employ mid and small company investing. I’m guessing, given what you’ve just said, you’re finding more opportunity there. Yeah. Are they at like historic highs as percentage of the portfolio or is it, I can only buy so much of them because they are small and they’re illiquid or…

SP: Probably as a percentage. You know, the way in which you measure small, it varies. Of course it does.

DM: Yeah. Small-cap in the US is not a small-cap in the UK.

SP: Correct. That’s exactly right. You know, so a small-cap and you have, you got a $5 billion company, that’s a small-cap in the US a $5 billion company is considered a massive company here in the UK. But if you look at those smaller companies, definitely they’re being ignored. And one of the reasons is that the broker coverage of these companies is, has been falling over the years because, you know, we are not paying brokers what we used to pay brokers. And so they don’t have the funds to employ an army of analysts to go out there. So these are overlooked jewels.

DM: And this comes back to your point of you’re prepared to look where others aren’t. [SP: Yes.] Whether it’s because they won’t have that analyst coverage or because they’re not popular sectors where maybe other fund managers heard around.

SP: That’s right. And so what we look, what we do, what we don’t do is just buy everything that’s done. Okay. Because quite often, just because you know, the companies and stocks that have fallen, they fall for a good reason. Look, it’s finding those diamonds in the dust, the ones that have fallen where you say, you know what? People are taking a short term view.

I mean, let me give you a perfect example, which is you know, smaller company, it is Gregg’s, okay? Yeah. Gregg’s is halved in the last year. It’s halved. It’s a very good business selling a product that people really like. I mean, they like the sausage rolls, the coffee’s half the price of many of the others. But why is it, why is it done? Well they warned that the hot summer meant that they were selling fewer sausage rolls.

Well guess what? It’s not gonna be hot all the time. No. Okay. So, you know, if you wanna buy garden furniture, don’t go and buy it in the beginning of summer because you’re gonna pay a full price. What do you wanna do? You wanna buy the garden furniture in late autumn, that’s when you’re gonna get a good price. The problem is not many garden centres are gonna have garden furniture. Okay. So if people are selling Gregg’s because they’re not gonna be selling many sausage rolls because it’s hot, well, you know, it’s not going to be hot forever. This is a good product, good business, giving me a nice four and a bit percent dividend yield with a high return on equity in a product people like and we happy to be patient and wait and they’re growing.

DM: Yeah. So maybe one last big question, because I think this is the question really of our time. Yeah. We’ve been through industrial revolutions, electrification, internet. We are on the verge of an AI revolution. I certainly am not nearly clever enough or forward enough looking to know what that means. Not just for our business, but our lives, but our investments. What do you think of it as this next paradigm if you like, is it hyped? Is it overestimated? And then a touch on what do you think it means for companies who’ve been beneficiaries of the huge share price prices because of the expectation of this new wave of technology?

SP: Darius, I think it’s over hyped. And I’ll tell you why. The common thing when you speak to people is they go, well this is AI’s gonna change the world. But rail travel changed the world. Air travel changed the world. [DM: Yep.] And guess what? There’s still only two really. There’s a air travel, it’s a duopoly, you know, it’s Boeing and Airbus. Well, you didn’t wanna own those companies for the last 50 years, really? You know, so the problem is there are many examples over his in history where things have changed the world.

You know, Pfizer with their Lipitor statin changed the world. Well you didn’t wanna own Pfizer, so you’ve gotta be very careful. But let me, let’s take it back to the numbers because numbers are always important. If you look at the run rate of AI CapEx that the large companies are spending, it’s about $400 billion. Okay? That’s what they’re spending on CapEx on data centres and all the rest.

Now let’s just pretend, let’s just pretend, you’re an accountant. You’re saying, well I’m spending this $400 billion and it’s gonna be with me and we’re gonna have the use of it for the next 10 years. Okay? So I’m gonna expense $40 billion a year. Okay? Do you know what the run rate is for open AI’s revenue? So, I mean that’s Chat GPT. Okay. What are people paying Chat GPT right now? To use their product? The run rate revenue from an annualised basis is $12 billion. This is the big guy and you’re paying $12 billion, but hang on, we’ve got $40 billion of depreciation effectively. Yeah. That’s before the clever coders who charging a fortune before the electricity usage, all of that is just depreciating the CapEx. So how on earth are Open AI going to get an economic return from all the spend or any of these companies? They’re gonna have to charge more.

What’s the problem? The problem is there’s lots of competitors. As soon as soon as Chat GPT puts up the price, we’re gonna move to Perplexity. As soon as Perplexity puts up the price, we’re gonna move to Claude and then we’re gonna move to Grock. And so there’s just too many competitors. Our people are not gonna make money. And so that’s the first thing.

The second thing is, if you look back at the tech companies in the early days you had Amazon doing online shopping and then cloud. Okay? You had Google doing search and advertising. You had Meta doing the social media and advertising. You had Microsoft doing enterprise. They all had their own little areas. Then they started, some of them started to morph into the other areas. So you had Alphabet or Google starting cloud, okay. Get competing with Microsoft and Amazon. You had Microsoft buying LinkedIn started to do a little bit of social media. You had Amazon solving to advertise. So they moved into Google’s domain.

They’re all trying to ease each other’s data. They’re trying to get each other the dinner. Now what’s the problem? They all in AI, every single one of them. Okay. And they’re all winner takes all we all gotta spend. It’s not gonna be pretty. So we gotta be very careful about that.

DM: And that is, so I guess if we are having this conversation in a period of time Yeah, and they’re all down 80%, then they’re now into your value. You know, they’ve done the spend, the share price is down, they’re now maybe building cash again. Yeah. Focusing on core opportunities that they might be sort of stuff that you look at.

SP: Yeah. So I think Yeah, that’s right. And so you’ve just gotta be, we’ve gotta be careful about not getting too excited. There’ve been lots of, I mean look at, you know, I was looking at one of the, at the worst performing stocks over the last year. Nova Nordisk is right there. Yeah. Okay, well isn’t that a great story? I mean, a year ago it’s the best drug on the planet, best drug on the planet, obese population. Great story. Price is too high. Yeah. Okay. It’s down 48% still selling obesity, drugs. Not like there was anything wrong with their drug. Not like they haven’t grown still great people paid too much for the story. Yeah. You gotta be very careful about paying too much for the story.

DM: So I think you’ve explained what you do and how you do it and how you think, which is what I think I wanted our listeners to understand as a a newly rated. I mean, within the last year I’ll allow you a little bit of sales or a little bit of performance discussion just to finish our chat today because as you say, whilst Ranmore is not a high street name, historically, you’ve got a 17 year track record.

I can see because I’m sitting looking at you, you’ve got some gray hairs like I have <laugh>. So you’ve been doing this for a little bit of time. How have you done through the market cycle? So 17 years when we’re going back to what, 2008? [SP: Yeah.] So you sort of probably launched just as the Great Financial Crisis then you said we had a decade plus of no interest rates, GFC, all sorts of various different factors at play. How the fund performed in those different cycles and how do you see the fund within a portfolio? How do you see what you do differently to the others just to close?

SP: Yeah, so we’ve I mean if you look, but thanks Darius. If you look back, a £100 invested when we started is now worth £904 pounds compared to £472 pounds I think it is in the IA Global. So we’ve beaten the peer group, we’ve beaten the world index, and we’ve done that at a time when value has for most of that period been largely out of favour. Yeah. So you know, we’ve still taken a 100 to 900 and if you think of, as you rightly say, you’ve had the Global Financial Crisis, European crisis for Kashima, you know, pandemic invasion, et cetera. Each one of those crises brings opportunities. And so that’s what we do. You know, we look for those opportunities. And keep our heads down. You probably haven’t heard of us because we kept our heads down.

Most of that time just ferreting out the opportunities and that’s where we, that’s how we spend our resources. We’ve only got one fund. We’ve only got, you know, one team. We don’t do any segregated mandates. Everybody, all our money, our family’s money, et cetera, is all in the pot alongside clients in the same fee classes. There’s no special fee classes for you know, for friends and family. That’s it. If we can’t charge our parents and our siblings a fee, well why are we gonna charge that fee to, you know, if we, if we’re not happy to charge that fee to our parents and siblings, well, we’re not gonna charge our clients. So we are just trying to do the right thing. Look for the opportunities, do act sensibly with other people’s money, you know, and and not buy something because it’s in the benchmark.

And I think that’s one of the challenges these days is is that because of these benchmarks, you know, everyone goes on about these benchmarks. Well, the benchmarks haven’t fallen in many years. We had a brief, I think in since we’ve been going, the S&P 500 benchmark is up 10 or 11 times out of those seven, 10 years. Okay. So, so 17 yeah, up 11 years out of 17, it’s down double digits. One of those 17 years. Okay. So people have forgotten about fear. People think benchmarks only rise. They don’t only rise. I think at times when the market’s hot and heavy, you just gotta be cautious and that’s it. So that’s what we do. Sure. And that’s how we do it.

DM: Thank you very much. Really interesting chat. Not just about AI but about potentially some of the hype and bubbles in markets today, but also how you look at things and where you go to find opportunities.

SP: Thanks Darius. That was great.

DM: Now listen, if you’d like more information on the Ranmore Global Equity fund, please do come and visit us at fundcalibre.com. And if you’ve enjoyed our chat and podcast today, please do like and subscribe to the Investing on the go podcast. Thank you very much.

Please remember, we’ve been discussing individual companies to bring investing to life for you. It’s not a recommendation to buy or sell. The fund may or may not still hold these companies at the time of listening. Elite Ratings are based on fun caliber’s research methodology and are the opinion of FundCalibre’s research team only.