In July, the Strategic Europe Quality Fund gained 12.39% whilst the MSCI Europe rose 7.61%. Sector allocation was positive by 267 bps and stock selection returned 343 bps. Our overweight in the Industrials, Communication Services and IT Sectors, and our structural underweight in Pharma, Energy and Financials worked in our favour this month.
The market’s focus seems to be shifting to the impact of central bank monetary tightening on the economy. Fed members are determined to fight inflationary pressures by raising interest rates, even if it means triggering an economic slowdown. The market has taken note of this context and the inversion of the yield curve in the United States is evidence of investors’ caution surrounding the growth outlook.
Given the Fund’s strong exposure to quality stocks, which tend to be more resilient in this type of environment, we believe that our portfolio structure is well suited to weather future turbulence. We attach particular importance to the ability of the companies in which we are shareholders, to pass on production cost increases to their selling prices. Pricing power remains one of our primary selection criteria.
Most biannual publications are released in July. To date, we are generally satisfied with the operating performance of the companies in our portfolio, with most of the publications validating our investment cases.
In IT services, Capgemini and Alten have published higher-than-expected revenue growth. We believe that the digital transformation of large companies will remain a promising theme over the next few years.
In Industry, the results published by Schneider and Nexans were very good. In a macroeconomic climate that promises to be more complicated in the second half of the year, these two companies will be driven by the imperative of the energy transition. The need for infrastructure electrification will provide them with a significant growth driver that should be reflected in their operating performance.
Spie’s second-quarter results are going in the right direction. The company recorded a good level of organic growth at 4%, and growth forecasts for the full year have been raised. Like Nexans and Schneider, Spie is well exposed to the “mega trend” of the energy transition. We agree with management’s view that the company’s future growth will be above its historical trend of 1-2%. If this is the case, the company’s valuation levels are still too low.As always, we invite investors and prospective investors, to get in touch should you wish to discuss the positions held in the portfolio. Please do not hesitate to contact us for further information.
As always, we invite investors and prospective investors, to get in touch should you wish to discuss the positions held in the portfolio. Please do not hesitate to contact us for further information.
+44 1481 742380
The views and statements contained herein are those of Phileas Asset Management in their capacity as Investment Adviser to the Fund as of 08/08/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.