In the heart of Europe

The first ever InvestmentEurope fund selector roundtable in Brussels was held at the Hotel Amigo on 26 May, covering equities and fixed income.

The first InvestmentEurope roundtable dedicated to Belgian fund selectors took place at the hotel Amigo in Brussels on 26 May.

Four asset managers – Capital Group, Invesco, Investec and T. Rowe Price – provided insights into the equity and fixed income universes.

Rajeev Bahl, European regional analyst in the 4 Factor Equity team at Investec Asset Management, made the case for European equities.

Bahl said the progressive economic recovery in Europe was leading to a recovery in corporate earnings.

If 2015-2016’s figures have been slightly hit by the turmoil in commodities, earnings’ estimates for 2017 show no headwind from commodities.

“Companies in Europe are doing the right thing in terms of restructuring their capital base and their operating costs to get returns up,” Bahl said, quoting French company Michelin and some banks as examples.

He added governments of countries such as France and Italy have now understood global competition is the bigger issue and that they have to allow local companies to get fit.

Bahl believes the recovery is only just starting in Europe, with both returns and corporate cashflow improving.

He referred to auto sales as “good indicator”.

“Car sales in Europe are still 15% below the peak level, but improving since 18 months ago. European consumers do feel confident enough to purchase a car.”

Why play European equities now? Because the gap in valuations between US and European equities will soon close, and the potential exists for an underlying re-rating in European equity markets, Bahl further argued.

Alexander Uhlmann, director of portfolio management within the Invesco quantitative strategies team, provided an outlook on equity market neutral strategies.

He explained they have delivered positive returns in ‘down cycles’, especially during the financial crisis and the bust, as well as in ‘up cycles’.

Also equity market neutral strategies generated higher risk-adjusted returns than their traditional equities peers over the long-term, Uhlmann suggested.

He underlined their low correlation with traditional asset classes and how they brought lower risk and drawdowns than classic equity strategies.

He said that quants at Invesco means the systematic application of fundamental and behavioural insights.

The stock selection of the Invesco Global Equity Market Neutral fund relies on four pillars that are developed as sub-factors: How are earnings expectations changing? What is market sentiment telling us? What is the management doing? How attractive are valuations?


Steven Smith, investment specialist at Capital Group, explored opportunities in dividend-paying stocks and presented the Capital Group Absolute Income Grower fund.

He said finding income from non traditional sources has become more important than ever, and argued that companies growing dividends have provided stable and unconstrained returns over the long term.

“80% of the inflation-adjusted total return when investing in equities has come from dividend income for the past 115 years,” Smith said.

“Since the 1980s, we are in an equity bull market, with the exception of a few years. Equities markets prices have gone up and equity multiples re-rated, meaning that the dividend income component of total return has come down.

“The level of dividend income should start to increase again. Equity multiples in certain markets look pretty stretched and dividend yields are reaching high levels. In the current low yield environment, we believe dividend income could gain more importance over the long term,” he explained.

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