José Luis Jiménez

MAPFRE Group Chief Investment Officer


The insurer company’s chief investment officer is committed to value. He likes Spain, but is calling for more clarity in the country’s economic strategy. In ESG, he believes that not everything is fair game.

With 40 billion euros managed under the control of the insurer, third parties and clients, MAPFRE AM is one of the key players in asset management. It also aspires to continue growing with Abante and is open to new corporate operations. Its chief investment officer, José Luis Jiménez, explains in this interview that they have an innate cautionary bias toward the insurance industry, and that they adopt a ‘value’ approach to equities, shying away from volatility. This includes cryptocurrencies and some technology companies, and he mentions that he prefers, for example, a company like Iberdrola to one like Tesla. He also assures that they are committed to Spain, although he does not agree with the tax increases proposed by the current government. In this regard, he calls for an economic policy that promotes growth and a strategy that puts an end to the dynamic of increasing debt and deficit by taking advantage of monetary stimuli.

How do you see the market today?

Right now there is a combination of very positive factors. We are seeing very good results. Not only from a corporate point of view, but also at a macroeconomic level. The indicators are starting to move and at a good pace. In this context, vaccination will condition the extent to which recovery can open into a ‘V’ or a ‘U.’ If the V opens up too much, the damage will be exponential. How long can a company or a self-employed person withstand not being able to develop their business and no income? In the developed world, there has generally been a lot of progress in the matter of vaccination. Especially in Israel and the USA, where President Joe Biden has already said that people will be able to go without masks by July 4. Here in Spain, we are more delayed than necessary, especially due to the importance of tourism. By May or June, we should have vaccinated at least 70 percent of the people working in the sector (in addition to the elderly). If not, we bear the risk of losing a year in economic terms. For something that costs around eight euros, the cost of opportunity that a vaccine can have is incredible. In Europe, Brussels has set a range for vaccination targets of between June 21 and September 21. For Spain, June is not the same as September; September is another year lost. Vaccination is a priority not only at a health level, but also at an economic level. In countries like Israel, we are already seeing images of places on the coast with crowded terraces and people in the street without masks. Seen from an investor’s point of view (as well as from a social point of view), it makes us envious. But beyond these differences, on the subject of vaccination, the big picture is quite positive.

Do you see significant differences between countries?

In this scenario where economic activity is highly conditioned by monetary and fiscal policies, those countries that have injected additional fiscal stimuli—the latest being the US—are doing very well. The same has happened in many European countries, such as Germany. When you look at public spending on aid in relation to GDP, Spain also lags behind in this respect. That worries me. On the monetary policy front, it’s true that in recent weeks we have seen some sparks fly, such as with the issuance of the 7-year bond in the US due to inflation expectations. However, the core message from central banks has been that they are going to maintain the stimuli and will not do anything to hinder economic recovery, otherwise we would fall into another kind of crisis. In fact, we think that inflation is a temporary issue. It’s true that COVID-19 has broken the value chain of many companies, but that will be fixed. Temporarily, in the short- or medium-term, we can have inflation above the central banks’ targets, but in a way that’s compatible with them.

Have you seen rotation in the market? What is your view of value?

Yes, we have noticed rotation toward value and it has been very good for us. Insurance companies are very conservative. For me, the differentiation of value is understanding that the risk is losing money, and we are not here to lose money. I am very happy that in our US fund we have earned 20 percent; but I can be content with earning money, there’s no need to ask for the last euro. We do consider ourselves ‘value,’ and companies like MAPFRE, for example, at 50 percent or 60 percent of book value… you don’t have to be a genius to know how to see their value. Another thing is that the market somewhat takes time to recognize it, but stability and good performance ultimately prevail. The rotation toward value is underway. We have been noticing this for six months now, with the big technology companies (such as those under the acronym FANG) not moving while other sectors such as banking, energy and insurance companies have rallied strongly. Some of the sectors have been the hardest hit by the crisis, such as soccer clubs, where the lack of public support has led to their assets being worth more than the valuation at which they are listed on the stock exchange. For example, this has happened to Madison Square Garden in the US. Does anyone doubt that in a year’s time people will be able to go to a stadium to see games or concerts? The central scenario is that we are going to go back to having a life like we had in the past. As such, we see a major opportunity in the rotation to extract value in the market.

What risks are you concerned about?

That this monetary and fiscal aid has a dark side. We are increasing the deficit and public debt. The governments must have a coherent plan at the economic level, as is the case at companies. For example, we have broad parameters in the injection of European funds, such as renewable energies, digitization… but there are still many things missing from the equation. Especially for many economies where the service sector is crucial.

There’s also the rise in tax measures — Spain must be one of the only European countries that is doing so. This is the worst time to take such measures. If companies don’t grow (if they don’t allocate resources to employment and projects), the more we will pull from the fiscal side, the more we will be shooting ourselves in the foot. This crisis is an acceleration of the previous crisis and is widening certain gaps, such as the gap between the rich and poor. But this is not a matter of raising tax measures every year by one or two points, because the gap will continue to widen. In other words, this cannot be solved by working on the consequences of the crisis; the causes are what we must work on. Factors such as training or vocation; factors that come from before. It’s like treating the symptoms when you’re sick: that doesn’t cure the body’s problem. Should taxes be raised? Well, this is done when the cycle picks up, economies grow and companies produce more and hire more workers. In other words, it has to be procyclical, not countercyclical. Now is the time to stock up the pantry. Germany serves as a good example of how important it is to manage the economic cycle: they have been more austere, have generated a surplus and have reduced government spending on essential or more critical issues. With the crisis, they have been able to provide direct aid on 70 percent of turnover before COVID-19 to compensate for closures. In contrast, many countries in southern Europe did not have these resources. This countercyclical fiscal policy is a structural problem. Economics is one thing and ideology is another.

Are you concerned that this risk environment could impact Spanish investible assets?

The market is likely to price countries out if they are not doing things right — no matter how much the European Central Bank (ECB) comes to the rescue. In the post-COVID-19 scenario, once we’re all immunized, the economy will be like a beach after a tsunami. Countries that have implemented the correct economic policy will resist, while the weaker ones will be swept away by the water. This isn’t happening yet and there is still room to react. For example, on the issue of European funds, we need to think about what reforms Spain will make and for what purpose. Investors will want to see coherent policies and a coherent project. If this doesn’t happen, after the tsunami, the market could begin to become nervous about those countries that have not recovered in time or that have debt problems. An example of this from not too long ago is Italy in 2018, when the Italian bond reached three percent.

In this regard, is the current Spanish bond rate sustainable?

In the short-term, the ECB isn’t going to throw in the towel — at least not until recovery is solid and we are out of the pandemic. Once we get back to normal, we’re going to go back to basics: how much this economy is growing and how much money is going toward paying down debt. If the market questions these parameters at any point, financing will become more expensive. The problem is that we have been increasing debt and the deficit for many years, even when Spain started to grow and recover a couple of years ago. With debt above the total GDP, if Spain does not grow as much as expected, the gap will continue to widen. I think the euro is here to stay, but at some point, the financial markets are going to become nervous and demand a premium that we might not be able to afford. Although, as Paul Krugman said, “a country is not a company” (especially in terms of complexity), and I also believe that it’s important for nations to have discourse, a strategy and policies.

Have you downgraded your valuation of Spanish investible assets because of this view of economic management?

The timing of the current market is very good. We believe in the Spanish economy and Spanish companies and we have large investments in both their debt and in the stock market. Spain is a great country. We have examples of this worldwide, such as Iberdrola or Inditex. We are committed to Spain because we believe it will do well, but that does not detract from the fact that if we are able to articulate a good strategy, we will do even better.

What are your bets on the Spanish stock market, especially now that the recovery seems to be reviving the cyclical appeal of our indices?

We are ‘value’ and have a long-term mentality. But we also mix that value with pragmatism. In other words, we like to invest in companies that we know very well, with good fundamentals and that generate a lot of cash. However, there’s also the famous dilemma: Would you rather be right or successful? We prefer to be successful. It’s not a matter of labeling ourselves and going against the market. In this environment, there are many IBEX 35 companies that are truly fantastic. What’s more, with regard to the economic issue in Spain, we have to bear in mind that a significant part of the revenue of the large companies in the index come from other parts of the world. At the sector level, we prefer to analyze from the bottom up, company by company. The move toward value has been very good for us and we don’t plan on changing. It’s very difficult for a cautious investor with a patrimonialism sentiment to consider companies with exponential growth. Take Tesla, for example. Hopefully it will make a lot of money and do very well… but we are not the investor for that type of company. I prefer something predictable. If I have to choose between Tesla and Iberdrola, the decision is crystal clear for me. If I don’t invest in Tesla, will I miss out on a 50-percent increase? Maybe so, but it could also suffer a 50-percent drop.

What is your view on ESG (environmental, social and governance) investment?

For us, it’s not a fad; it’s part of the company’s DNA. At a shareholders’ meeting in 1965, we brought up the issue that companies not only had to earn money, but also have to contribute to the society that allows them to generate that wealth. The new European regulation on ESG is a great thing for us, because it reinforces what we’ve always tried to do. But everything has to be done with a certain amount of caution. For example, if there are developing countries that owe a large part of their growth to energy with high CO2 emissions, why would developed countries limit their growth by taking that part of their economy away from them? We have to go into great detail with this, because it’s not worth cutting and pasting. There’s no point in having a database that tells us what’s good or bad — in essence, that’s not what we’re looking for. When investors go by ratings alone or invest through ETFs, they sometimes find themselves doing exactly the opposite of what they wanted to do. Apple can have a very good ESG rating and a copper company can have a very low ESG rating. But Apple cannot manufacture without copper. As investors, I think that we have to contribute toward change: to help companies with low ratings to migrate. So I think European regulations are moving in the right direction, but we still have a long way to go. For example, mutual funds are going to be held accountable and we still don’t even know how this is going to be measured. In terms of labels, who’s to say what ESG is? I make this criticism despite the fact that we have the label awarded by the French Ministry of Finance… but there’s still so much to do and so many basic pieces are missing that it’s very difficult to make decisions, especially decisions that affect the entire value chain: funds, plans, advisors and, the first step, the companies themselves.

Regarding the various pillars of ESG as a concept, what is the balance between the environmental aspects and social or good governance aspects? In other words, on which side is the emphasis placed when, for example, we have companies in Spain with a good environmental rating but that have had governance scandals?

We believe in good corporate governance, not because it sounds good but because we work in a company with very robust corporate governance. At MAPFRE, for example, no one in my family up to the fourth degree can work for me. In complicated times, it’s very important to have a board with intelligent, diverse people who contribute, with structures for the separation of powers… In this context, we must also bear in mind that, while we do not invest in controversial assets or sectors, we can make exceptions. These exceptions are run by the Risk Committee; they’re no longer just with the analysts or the managers, who also have the oversight of the sustainability officers. For example, I was with the ambassador of an island that had a lot of power supply problems. They had constant power outages that even affected the island’s hospital facilities. After years of looking for renewable energy solutions, they found nothing and, in the end, they had to establish a coal island. That’s the kind of case that leads us to ask, does it deserve an exception? Another example is Repsol, which has a plan to stop being a fossil-intensive company and go green. If you believe in something, you have to help foster that change from within and demand that things are done right as soon as possible. You have to be pragmatic.

What is the action protocol when a problem arises in an investment that calls governance into question, such as the cases of Iberdrola or BBVA?

If it’s integrated into your investment process, this is a problem that you’re going to see ex-ante. In any case, we also have an ‘ex-post’ process; that is, collecting and analyzing data from and with third parties, such as the rating agencies themselves. Then we also go through the risk analysis department, where the ESG part can take precedence over the financial part. There is no defined model here. For example, we have a study with the University of Siena whereby we analyzed different sectors and the importance of each ESG aspect in each of them. Not all sectors are the same; you have to look at the importance of each pillar for each of the economic activities. What’s more, you can’t control what you can’t measure. We have put a lot of emphasis on seeing how much progress we have made in our efforts to achieve the SDG goals that we have set as a priority. It’s important to know corporate governance, ‘ex-ante,’ ‘ex-post,’ to understand which variables affect each sector, to compare with empirical sources of knowledge, etc. I see many players with the ESG label, but when it comes to quantifying it, the situation changes. The biggest challenge we have is measuring what we have done. An issue like that at Iberdrola is monitored, but we don’t like to make exclusions until there is certainty. Regardless of whether it’s negative, we have to see whether it’s clear, how it’s identified, if the impact has been measured… We must have a 360-degree view of the investment.

Changing the subject, do you have investments in cryptocurrencies such as bitcoin or are you considering them?

We are not and will not be. We are not interested. There’s a part of the technology that can be attractive. Bitcoin is what people might imagine Dutch tulips were like in the 17th century. It has no intrinsic value — it’s worthless, only to the extent that people believe that they can buy or sell with bitcoin. But it’s a very speculative market; just look at the volatility. It’s also not very transparent. Bitcoin does not meet ESG criteria from any angle… It consumes merciless amounts of energy. I don’t see the social impact either; in fact, many of its users avoid declaring their transactions with cryptocurrencies. I don’t know what will come of cryptocurrencies, but it will probably have nothing to do with how it started.

At the business level, one year on from the agreement with Abante, can we expect new corporate operations in the short- or medium-term with MAPFRE at the forefront?

Abante is a partner that is going to grow a lot and we are going to grow with it. In fact, I think it will be the benchmark as the largest asset manager in this country. With regard to MAPFRE, I think we’re the largest independent asset manager, with around 40 billion euros in assets under management. Are we going to take on more operations? That’s not a priority or a matter of urgency. But if there’s something of value that fits with what we’re doing, we would be delighted to look into it, both inside and outside Spain — as we have been doing in the agreement with LRF (La Financière Responsable) or with Boyer. If we see an asset or a team that can bring us value and we can bring value to them, we’re open to it. It’s very likely.