Lang: ‘Hubris’ led to carmakers’ woes

The co-founder of Ardevora Asset Management previously favoured carmakers, but his firm dumped its exposure to the sector last year because of fears about risky management behaviour and regulatory pressure.

Valuations in carmakers slumped last month after Volkswagen was engulfed in a scandal in which it was accused of deliberately circumventing US emissions tests.

The manager said the scandal followed years in which manufacturers took advantage of high oil prices to ignite a vehicle-upgrade cycle based on the need for greater fuel economy and cleaner emissions.

He said: “Seven years of success [had] emboldened management. You can see that in the language on capital allocation decisions.

“Volkswagen rang a number of alarm bells in the last year or two from what it was saying. It was trying to grow very quickly and trying to be the largest and most successful car company in the world. That’s bad language. That’s hubris and overconfidence.

“We unloaded pretty much all our exposure in the auto sector in the last year or so. We then got lucky.”

The scandal has had extreme repercussions for Volkswagen: its stock plunged 18.6 per cent on September 21 and fell a further 19.8 per cent the following day, before recovering at the end of that week.

Its chief executive Martin Winterkorn resigned the same week, which was followed by an announcement that the firm had put aside some ¤6.5bn (£4.8bn) to cover related liabilities.

Mr Lang added: “We really liked the auto industry five years ago. It was a collection of companies run by people severely traumatised by what happened in 2007 and 2008. A number of them had to be rescued.

“We like industries where they have had near-death experiences, because that’s a change of emphasis that can enforce a change of management.”

As part of his investment philosophy, Mr Lang excludes companies where he thinks the behaviour of bosses looks excessively risky.

The manager was also worried that both VW and troubled commodities giant Glencore could send shocks through the financial system if their recent struggles became more serious.

Glencore’s value fell by more than 70% between May and October, amid concerns over commodity prices.

“Glencore and VW could have a big impact on financial markets because they operate in shadow banking,” he said. “Glencore was originally a trading house that linked up with Xstrata [an Anglo-Swiss mining firm]. Glencore is an enormous counterparty in the global trade system.

“That makes VW and Glencore very risky propositions, because if they go under there is a lot of back-end counterparty risk out there.”

Over three years, the £353m Ardevora Global Equity fund has returned 60.7 per cent, compared to 29.9 per cent from the IA Global sector over the same period, according to data from FE Analytics.