2016 Started like 2015 ended


Fund Commentary
18 Feb 2016


Unfortunately, 2016 started like 2015 ended, with a sharp sell-off! Renewed fears nourished by a Chinese slowdown, further oil price falls, uncertainties around the strength of the US economy and credit market in general dragged financial markets down for their worst start since 2008. The Fund’s benchmark, the STOXX Europe 600 Net Return ended the month down 7.35%.

 In that context, the Fund was down 6.93% in January, only modestly outperforming its benchmark by 0.42% with equity markets characterized by very high correlation. Komax was the most significant monthly contributor to the performance, followed by Aubay and Serge Ferrari. At the other end of the spectrum, Mersen, SAF-Holland and SLM Solutions were the three main detractors. The Fund initiated two new positions during the month: Elis and Vexim while the investment in Stef was closed down recording a +11.4% performance since inception in May 2015.

Recent discussions with management teams or review of full year 2015 publications show no sign of tension or trend reversals in the underlying businesses. As experienced in 2009, this cannot be fully considered as a reliable advanced indicator as mood (and order intake) can turn pretty rapidly. However, the Investment Adviser’s perception is that 2016 is neither similar to the post Lehman situation nor similar to the sovereign debt crisis. The spectrum of systemic risk as in 2008 or an existential crisis like 2011 appears to be much more limited.

We should nevertheless be prepared for continued volatility in the months to come on the back of unforeseen and pronounced FX moves, massive transfers between asset classes and continued uncertainties. In turbulent times, the Investment Adviser tends to put more weight on the balance sheet and cash flow sides of the equation (price to book, cash levels, tangible assets, free cash flow yields) than on profit and loss multiples.

The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 16/02/16 and are based on internal research and modelling.