Interview #98 : Roderick van Zuylen (Night Watch IM)
Interview #98 : Roderick van Zuylen (Night Watch IM)
Value plus catalyst
For this issue we have the pleasure of interviewing Roderick van Zuylen from Night Watch Investment Management.
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Hi Roderick, thanks so much for taking the time out to do this interview.
Can you please tell readers about your background, and how you got involved in investing?
Hi Jon, thanks for having me.
I grew up in The Netherlands, but over my life I have lived in various other places, including China, Singapore, Spain, France, Sweden and the UK. For the last 12 years I have worked at various asset managers in Amsterdam.
But my wife is American and after 9 years of living in The Netherlands, she was no longer willing to put up with the Dutch weather. So, in September 2023, we moved to the US where I now split my time between Florida and Colorado.
Despite having worked on the buy-side for most of my professional career, I actually once studied electrical engineering, and even briefly worked in the oil & gas sector before making the switch to finance. That job allowed me to travel and see the world.
I think having worked in industry is a very valuable experience for any investors. These are the companies you end up investing in. But in the end, the oil & gas industry was not the most intellectually stimulating place to work,so I decided to take the CFA exams which opened doors for me in the financial world.
First as a quant, then as a fundamental analyst, working my way up to Senior Portfolio Manager at the Dutch Van Lanschot Kempen where I co-managed various value and dividend funds.
What got me interested in investing were books by Jim Rogers and Peter Lynch, or stories like Riches Among the Ruins. I’ve also been reading Kuppy’s blog Adventures in Capitalism for maybe 15 years.
These are all investors who manage to tie the real world to their trading screens. I found that inspirational. They taught me that to understand the world, you need to travel and experience life. That’s also one of the reasons I’m happy to experience life in the US right now.
Many European investors allocate more than half of their portfolio to US stocks, but most have never set foot in a Home Depot or figured out US health care. I think all of those experiences can make you a better investor.
Why did you decide to launch Night Watch Investment Management? And who do you manage funds on behalf of?
For me, moving to the US started a new phase of my life. I think every PM at some point dreams about setting up their own fund. In my opinion, that’s the only way to see what you’re capable of. Working for someone else’s fund means you’ll always be constrained in some way.
Moving to the US felt like the right time to give it a try. Isn’t this the country of endless opportunity? Of the American Dream? This felt like the best time to pursue my passion.
I believe many investors are currently underexposed to value stocks, as well as to international companies. As we all know, many value funds have struggled with their performance for at least a decade. An often-heard complaint is that ‘value doesn’t work’.
I founded Night Watch Investment Management because I believe value investing needs to be done differently. Rather than just focusing on valuation, we focus on what’s changing at a specific company.
If the market clearly doesn’t care about an industry or business, what will change that gets them to care? Some people would call this a catalyst.
What is the catalyst for an investment to start working? Valuation is important, but it’s not enough. We need a catalyst before we get interested.
We also realized that retail investors often end up allocating their savings to two or three wealth managers, who then all end up buying stocks out of the same universe. Maybe one wealth manager invests in Nestle whereas the other buys Unilever, or they buy ASML instead of NVDA. Differences are minimal.
The idea of Night Watch is that we provide actual diversification. We believe names in our portfolio are quite unique. Call it off-the-radar. It’s my goal that if I mention my portfolio names, the average investor hasn’t heard of it. But when I explain the thesis, it should immediately make sense.
Not only does this provide diversification, it creates an opportunity to add value through research. So, if an investor decides to move money from one wealth manager into our fund, it should be an improvement to their overall portfolio.
Meanwhile we try to keep fees reasonable, and we try to find the right level of diversification to manage drawdowns without losing the ability to express conviction. I have finally created a product that I’m comfortable recommending to my friends and family.
Having launched only in January 2024, we have acquired some institutional investors in the US, which allows us to focus on further building our track record without worrying about AUM. We are targeting both institutional investors as well as HNWIs.
Additionally, we’re exploring the options for an international fund structure. I would love to be able to offer a product to my friends back home in The Netherlands.
What type of businesses or situations do you invest in?
We look at companies that are cheap based on their free cash flow potential and have an identifiable catalyst. We’re generalists, but at the same time, we know our limitations when it comes to complex industries such as tech or pharma.
About 80% of our portfolio also benefits from strong inside ownership by management or directors. We believe this alignment of interest assures a certain quality and provides some downside protection.
Finally, we’re global. We’re currently 60% USA, 34% Europe and 6% EM. EM is harder because I want to be able to visit a company and talk to management before investing.
On our last trip to Mexico I had to convince my wife to spend at least one night at a Norte19 hotel (‘the Holiday Inn of Mexico’), which today is a portfolio company.
Are there any particular industries or sectors where you’re finding good value at the moment?
At the beginning of the year, we published our strategy in a document you can find on our website. In short, we saw long term opportunities in US housing, Offshore Energy, and the Aerospace supply chain.