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Driving returns – What Skoda has to teach investors about value and paying for reliability

09/09/2016

Simon Adler

Simon Adler

Fund Manager, Equity Value

What do you call a Skoda with a sunroof? A skip. Do you have a wing-mirror for a Skoda? OK – that seems like a fair swap. Why do Skodas have heated rear windscreens? So you can keep your hands warm as you are pushing them. We have plenty more, of course, but it now appears Skoda – for years the punchline of any joke about rubbish cars – is enjoying the last laugh.

According to a study by US marketing company JD Power, Skoda was the most reliable brand of car surveyed – recording 66 problems per 100 vehicles, compared with an average total of 112. In contrast, upmarket brands such as Mercedes-Benz (154 problems per 100 vehicles), BMW (156), Audi (170) and Land Rover (197) were found to be a lot more likely to develop faults than their cheaper counterparts.

A clear caveat here is these findings could well reflect the possibility the owners of prestige brands will be less tolerant of even the smallest faults in their cars. Not that that is enough to stop us being struck, here on The Value Perspective, by the parallels with investors’ current hunt for ‘reliability’ and ‘safety’ in stocks – and the decreasing likelihood they will find it the more they are prepared to pay.

As we recently argued in Calm before the storm: “The premium paid by large parts of the market for the perceived safety of many traditionally defensive stocks – the likes of BAT and also much of the food and beverage sector – continues to rise. Ignore valuation and the wider market’s desire for peace of mind could end up proving very stressful indeed.”

Equally importantly, as we have discussed in articles such as Cause and effect, the best decisions can be reached by analysing data rather than when emotions are in play, while the most effective solutions can be found in the least fashionable-sounding areas that few people want to back. As an actual owner, this member of The Value Perspective has known for a while now the answer to the question of how you double the price of a Skoda is no longer: “Fill up the tank.”

Author

Simon Adler

Simon Adler

Fund Manager, Equity Value

I joined Schroders in 2008 as an analyst in the UK equity team, ultimately analysing the Media, Transport, Leisure, Chemicals and Utility sectors. In 2014 I moved into a fund management role and have had experience managing Global ESG and Pan-European funds.  I joined the Value investment team in July 2016 to focus on UK institutional and ethical-value portfolios.

Important Information:

The views and opinions displayed are those of Ian Kelly, Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans and Simon Adler, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated. They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.

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