Europe in 2023: Resilience pays off in stock picking

The past year challenged investors in many ways. The development of the markets were characterised by the fact that many trends and rules that seemed to be carved in stone broke down or even reversed.

KOMMENTAR DES FONDS
17 Jan 2023

The past year challenged investors in many ways. The development of the markets were characterised by the fact that many trends and rules that seemed to be carved in stone broke down or even reversed.

One example of this is the normally low correlation between government bonds and equities, which no longer applied in 2022. European small and mid-cap stocks in particular recorded high losses, pricing in the sum of all fears – the Russia-Ukraine war, inflation, the energy crisis and the shift to the populist right in Sweden and Italy, to name just a few of the trouble spots.

But even in a difficult market environment, as demonstrated, it is possible for active stock pickers with a highly selective investment strategy to manage the portfolio relatively independently of the general market trend. Despite the many challenges, European small and mid-cap stocks offer rich terrain for finding crisis-resilient stocks.

Thus, in the crisis year 2022, we adhered to several principles to make our European small and mid-cap fund, the Strategic European Silver Stars Fund, relatively independent of the general market distortions. On the one hand, we have been actively stock picking, adding to positions in stocks that have been particularly convincing from a fundamental point of view.

For example, Ipsos, a French market research company, with the largest position in our portfolio, saw a positive strong price development in 2022. In our stock selection, we stayed out of overheated sectors that focus on revenue growth rather than earnings.

We have built up several new positions and sold some stocks in the past year. For example, at the end of February, after the outbreak of the Russia-Ukraine war, we added the French glass packaging manufacturer Verallia to the portfolio, which was the third strongest performer for the Fund in 2022. This enabled us to buy the share relatively cheaply and to profit strongly from the price rally that began soon afterwards.

2023: Challenging but manageable

In 2023, the stock market development will depend on many factors, such as the development of corporate profits, inflation and interest rates. We continue to try to make our portfolio independent of macroeconomic factors, over which we have no influence.

In addition to fundamental data-driven stock selection, we are increasingly focusing on companies that benefit from certain social and economic trends or fulfil the following criteria:

  • Increased geopolitical risks create the need for cybersecurity protection and reshoring movements.
  • Climate change acknowledgement with multiple impacts to be felt on mobility and energy efficiency, on travelling experience and leisure activities.
  • Liquidity and refinancing needs: sound balance sheets and strong free cash flow are absolutely compulsory to become a consolidator at the right point of the M&A cycle.
  • Operational excellence to cope with recessionary fears through productivity gains, flexible cost basis, make or buy and automation decisions.
  • Continued development and penetration of eCommerce players versus traditional retail.

Thus, while 2023 could be a year with many challenges, it could also be a year in which well-thought-out careful stock picking, pays off in particular.

As always, we invite investors and prospective investors, to contact us should they wish to understand our views on the current situation and the positions held in the portfolio. Download the latest factsheet. 

Please do not hesitate to contact us or visit the Strategic European Silver Stars Fund Page.

Adam TurbervilleAdam Turberville
Director
+44 1481 742380
a.turberville@ericsturdza.com


The views and statements contained herein, including those pertaining to contribution analysis, are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 03/01/2023 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.

Morningstar™ Ratings Disclaimer
The Strategic European Silver Stars Fund – A EUR share class has a Morningstar rating of 4 stars overall and 5 stars over 3 Years. Morningstar Rating™ as of 31/05/2022. Past performance may not be a reliable guide to future performance. Returns could be reduced, or losses incurred, due to currency fluctuations. The Strategic European Silver Stars Fund received a Morningstar 3 Globe Sustainability Award. Sustainability Rating as of 30/04/2022. Out of 789 Europe Equity Mid/Small Cap funds as of 30/04/2022. Based on 98.92% of AUM.  Historical Sustainability Score as of 31/03/2022. Sustainalytics provides company-level analysis used in the calculation of Morningstar’s Historical Sustainability Score. Data is based on long positions only.

 


Did you know?

The Fund’s name – the Strategic European Silver Stars Fund – references the Alpine Edelweiss or ‘Silver Star’ flower, which traditionally grows in unforgiving conditions at very high altitudes. The small white flower is a symbol of bravery and perseverance for those able to seek it out and embodies the ESG beliefs of the manager.

Edelweiss Flower

The Edelweiss flower.