Hidden gems highlighted in Paris
The InvestmentEurope‘s Fund Selector Roundtable Paris 2016, that took place 11 February 2016 at the Hotel Raphael, has seen speakers discussing various themes including the role of active managers in the current environment and hidden gems at the occasion of a panel discussion.
Julie Dickson, investment specialist at Capital Group, highlighted a US biopharmaceutical business Regeneron Pharmaceuticals as an hidden gem.
The company, which develops medication that fight diseases targeting the central nervous system, is one of the top 10 holdings in the Capital Group New Perspective fund.
Dickson said no one knows about Regeneron Pharmaceuticals as it weighs less than 1% in the Nasdaq-100 index.
But she added that the firm already generates significant revenues overseas and considered it as “the fastest growing pharmaceutical company in the world.”
Another stock she brought attention to was Amazon that Dickson described as “one of the biggest hidden gems ever seen in the last few years through its business arm Amazon Web Services.”
“We view Amazon Web Services as probably the largest technology firm in the world,” Dickson explained, assessing that a fast transition will happen in Amazon’s classification by the markets, from a retail business to a tech business.
Laurent Ducoin, head of Europe Stock-picking at Amundi, said he is looking for structural growth stories.
He highlighted Zalando, a European electronic commerce company selling shoes and clothes, as a gem.
Ducoin explained Zalando is growing by 20% to 40% annually in recent years with decent operating margins.
“In Europe, re-ratings are currently occurring but this kind of companies can post significant growth for the next few years,” Ducoin argued.
Commenting the role of asset managers in the current low-yield environment, Matthew Byer, executive director and chief operating officer of Spectrum Asset Management, said preferred securities have been under pressure in recent weeks with the market turmoil (volatility, oil prices, slowing growth in China, Deutsche Bank,…).
“Every day, we answer questions about the situation of banks and the pressure on economies bringing us back to the 2007-08 financial crisis. Markets are pricing preferred securities as if the risk of a new crisis is rising. But what is happening with that current volatility has nothing to do with what happened ahead of the financial crisis,” Byer explained.
He said gems are to be found in the differentiation between banks on the preferred securities market. “There are terrific opportunities between stronger and weaker banks as the market has thrown the baby out with the bath water,” Byer argued.
Jean-Marc Pont, investment specialist Equities, SRI and Multi-Assets at Generali Investments, said it was important for active managers to keep calm and carry on in the current environment, meaning they should stick to their investment process.
“We have just started the earnings season. It is an opportunity to revisit your model, to reassess the relative value of your stocks,” he said.
Pont added that it might be time to take profit of stocks which have performed well and to reinvest profits in high-conviction stocks with low valuations.
Invesco’s multi-sector portfolio manager Nicholas Wall agreed that active managers shall remain disciplined in market turmoil regarding their investment process.
“The amount of liquidity that is being taken out of the market by excessive regulation and market makers means that active managers have a role to play as liquidity providers,” Wall said.
Among gems, Wall favours the banking sector, especially European banks.
He assessed that the nature of banking has changed quite a lot in Europe and underlined European banks have much increased on a qualitative aspect.
Wall said the European subordinated debt paper issued by banks based in countries having strong financial regulation is currently attractive.
Magda Branet, senior portfolio manager in the Emerging Markets Debt team of First State Investments, suggested that the most obvious opportunities in markets are probably the ones that have been set up for a very long time.
She said a peculiarity of emerging markets is that they are very slow to price market events.
“Oil prices have fallen for almost six months in 2014 before we saw any turmoil in the EM,” she recalled.
Branet said she was fond of investing in Russia.
According to her, discipline and rigour in the research and investment processes are key to find gems within markets.