Investors light up Paris

The first InvestmentEurope Fund Selector Roundtable Paris has seen six managers presenting their strategies to local fund buyers. 

InvestmentEurope stopped off at the Hotel Raphael in Paris on 11 February, to launch its first Fund Selector Roundtable for French fund selectors.

Local fund buyers attending the event heard six asset managers displayed their strategies: Amundi, Capital Group, First State Investments, Generali Investments, Invesco and Principal Global Investors.

Magda Branet, senior portfolio manager in the Emerging Markets debt team of First State Investments, gave insights on the EM debt landscape.

Branet pinpointed the importance of differentiators for EM countries such as reforms, resulting in a huge dispersion of returns between countries’ performances. She highlighted a large differential between commodity and manufacturer exporters. First State Investments currently favours the latter, naming Eastern Europe a current sweet spot.

Branet also said EM sovereign debt issuance is close to zero. Only two regions might issue substantially in 2016: Africa and the Middle East.

Regarding flows, Branet said retail money has been exiting EM markets since 2013 but institutional demand remains robust.

Matthew Byer, executive director and COO of Spectrum Asset Management, the sub-adviser of Principal Global Investors’ preferred securities fund, discussed preferred securities and CoCos.

Preferred securities are mainly issued by global financial companies (roughly 80%) and 63.5% of them are in the US.

Byer argued recent regulation (Dodd-Frank Act, Basel III, Solvency II) has set up a favourable backdrop for investors in the area as it reduces risk and prevents further default of financial services companies.

The dollar denominated preferred securities markets has grown to around $508bn (€455.7bn) in outstanding paper since issuance of the first hybrid preferred in 1991. Outlining how Spectrum uses a bottom-up approach for credit selection and portfolio construction, Byer noted the example of a preferred security picked for the fund: RBS 8.

Byer explained it has been purchased since the firm’s models suggested the security was being priced attractively. He said preferred securities offer attractive yields compared to US treasury and corporate bonds.

Invesco’s multi-sector portfolio manager Nicholas Wall brought the European fixed income theme to the event.

In his view, the outlook is positive on European credit with investment grade opportunities.

High yield is to continue to perform in an equity bullish environment and net issuance is to remain low, Wall highlighted.

Opportunities are to be found in high yield credit segments such as subordinated financials and corporate hybrids.

Wall warned on the danger of Europe being only focused on its own market and advised investors act locally but think globally.

Jean-Marc Pont, investment specialist Equities, SRI & Multi-Assets at Generali Investments, detailed the strategy of a fund recently launched that focuses on the ageing population.

To benefit from “Grey Power”, Generali’s strategy relies on the selection of European equities through three pillars: healthcare (29% of the fund as at end January 2015), consumption (51%) and financial services focusing on savings and retirement (20%).  An SRI filter is applied for all stocks picked in the portfolio.

Pont underlined that the global population aged 60 and over will do more than double by 2040, reaching 1.7 billion from 0.7 billion individuals.

Europe’s population aged 60 and over is expected to rise by 7.6% over the coming 30 years. Pont also expects companies working in the three sectors the fund is invested in to grow faster than global GDP on a short-term basis

Laurent Ducoin, head of Europe Stock-Picking at Amundi, presented new opportunities in the European equities universe.

The group has drawn €85bn inflows in 2015 through the asset class.

Ducoin highlighted sectors such as telecom towers that generate cash and have interesting growth profiles; 2015 saw IPOs of telecom towers companies on European stock exchanges (Cellnex, Inwit) and others might be further listed.

A consolidation of the sector is expected. The gross margin of a telecom tower with three operators renting it would reach 65.3% according to Amundi’s figures relying on the Italian telecom towers market.

Ducoin also unveiled an equity gem, Steinhoff, a German group newly listed on European stock exchanges.

The group has been transforming itself in recent years and has acquired several companies to hold second place in Europe’s household equipment sector. It has also purchased Pepkor, considered the new Primark – a retailer of cheap clothes.

Julie Dickson, investment specialist at Capital Group, discussed the new geography of investing. Globalisation has broken market frontiers, she said.

Capital Group’s investment approach concentrates on the geographic origin of firms’ income rather than on income made in the country where they are listed.

Dickson argued that Anglo-Dutch group Unilever makes 77% of its turnover outside Europe. And India headquartered pharmaceutical firm Sun Pharma makes over half of its turnover in developed economies.

Dickson said traditional overweights and underweights do not take into account the global situation of companies.

The blue-chips Capital Group invested in through its “new geography” approach have achieved higher returns than other stocks over the long term, she argued, outlining the top five holdings as of the end of December being Novo Nordisk, Amazon.com, Regeneron Pharmaceuticals, Microsoft and Naspers.

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