Key themes from second set of Lausanne Summit speakers

The InvestmentEurope‘s Pan-European Summit 2017 continued through 28 April afternoon at the Beau Rivage Palace.

The second set of presentations featured key strategies from Baillie Gifford & Co, Ossiam in partnership with Barclays, Principal Global Investors, First State Investments, Eurizon Capital, First Trust Global Portfolios and MFS Investment Management.

Tom Coutts, head of European Equities at Baillie Gifford & Co spoke about finding growth in Europe.

Coutts has been trying to pick growth stocks in the last ten years of economic turbulence in Europe. He runs a “mid-cap biased” European fund applying a bottom-up approach with a long term view.

Seven of the top 10 companies in the firm’s Pan European fund have a long-term view, as Coutts noted his team “ignores the noise” of short-termism.

“It’s more important to think about the firm’s long term strategy than the price,” Coutts said.

Reflecting on challenges and opportunities across Europe, Coutts highlighted a “conscious bias” to Sweden on the back of transparency, while, in regards to sectors, he pointed out that energy “won’t be as near as big an industry in 20 years”.

Product specialist Mirko Jungmann from Ossiam in partnership with Barclays, for his part, discussed how to harvest value with sector rotation.

In an attempt to uncover a valuation metric that can contextualize performance, US economist professor Robert Shiller introduced the Cyclically Adjusted Price Earning, or CAPE ratio, which uses inflation-adjusted long-term aggregated earnings to remove the effects of business cycles.

Based on this value signal, Shiller, in conjunction with Barclays, developed a sector rotation strategy that is available through Ossiam’s ETFs based on the US as well as European equity markets.

Regarding this strategy, Jungmann said this “unique albeit simple” approach has delivered “strong returns” compared to its benchmarks since going live 4.5 years ago, as well as its long-run history.

Jungmann also noted the CAPE ratio suggests that “tech has been undervalued against utilities in the past couple of years”.

Principal Global Investors’ portfolio manager Joshua Rank explored opportunities within high yield fixed income.

This asset class may add “significant value” to investors, when combining a thematic approach in global high yield with techniques to uncover credit cycle opportunities.

Rank highlighted income returns of 5-7% in high yield and historically low default rates, as he said high yield fundamentals will continue to improve this year with the improvement in leverage, margins and interest coverage.

On the other hand, he noted the biggest risk of high yield is the oil prices’ fall. He also added that BB-rated debt is likely to be most sensitive to interest rate rises.

MULTI-ASSET APPROACH

First State Investments (FSI) portfolio manager Andrew Harman spoke about a flexible and dynamic multi-asset approach to cope with volatility and constantly changing correlations.

The firm’s multi-asset strategy is suitable for investors who cannot rely on “long-run average market returns” as they do not have an infinite time horizon.

To achieve investment targets over a specific time horizon, Harman’s team makes allocation decisions balancing out return objectives and market risks, making sure the fund is well diversified.

“A higher number of positions doesn’t mean more diversification, we make sure our positions are in different markets,” Harman said.

Eurizon Capital’s head of Equity Emerging Luigi Antonaci spoke about the firm’s EM fund applying a limited tracking error approach.

By minimising the typical ETFs inefficiencies, the fund can be a “good alternative to ETFs,” Antonaci said.

“If we compare our EM fund with the main peer ETFs you find a similar return profile but our fund has lower risk,” he added.

Antonaci said emerging equity has been increasingly attractive and, post Trump, flows have been steadily growing.

“Earnings are the main driver of the performance in equity emerging markets and acceleration in earnings means rising exposure to EM equities,” Antonaci said.

One risk of equity emerging markets is the negative asymmetry of EM beta, Antonaci noted, adding that the firm’s fund can offer global asset allocators a reduction of the mispricing risk in volatile markets.

ENERGY INFRASTRUCTURE

Product specialist Gregg Guerin from First Trust Global Portfolios spoke about generating a growing dividend stream through investing in energy infrastructure.

He explained that, in a current low interest rate environment, the North American energy infrastructure sector represents a “unique” opportunity set of real, high pay-out, long lived monopoly type assets.

Guerin outlined how to generate a high and growing dividend from a portfolio of non-cyclical energy distribution assets.

“Trust North American energy infrastructure seeks 6% annual returns,” Guerin highlighted.

MFS Investment Management’s investment product specialist Thomas Kramer made the case for unconstrained investing in today’s environment with the aim to preserve and augment the real value of capital without taking undue risk.

Kramer explained the benefits of investing when the only criteria is finding great companies trading at cheap prices, with no benchmark, region or market capitalisation constraints.

“We focus on long term investment ideas, identifying quality equity stocks to be around in 20 years time,” Krames said.

The aim, thus, is investing in stable companies, which lately have been found within consumer staples, such as Nestlé, Alberto Martínez, MFS sales director for Iberia, added.

ABOUT THE AUTHOR
Alicia Villegas
Alicia Villegas speaks Spanish and Italian and is Iberia Correspondent for InvestmentEurope. She was shortlisted for the Rising Star Award at the British Media Awards 2017 and Writer of the Year at the PPA Independent Publisher Awards 2016. Previously, she worked for almost three years at the seafood business website Undercurrent News as a market reporter. In Spain, she also worked for more than five years for several media outlets.

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