Growing positive trend

The Strategic European Silver Stars Fund returned +9.29% in November versus +6.40% for the benchmark. Year-to-date, the Fund has returned -9.63% compared to -18.58% for the benchmark; an 8.95% outperformance.

Fund Commentary
6 Dec 2022

The Strategic European Silver Stars Fund returned +9.29% in November versus +6.40% for the benchmark. Year-to-date, the Fund has returned -9.63% compared to -18.58% for the benchmark; an 8.95% outperformance.

European equity markets had a good month in November, continuing October’s trend, both in terms of being positive; and it is also now the sixth consecutive month that markets have moved more than 5%. We are also seeing an increasing correlation between European stocks and the Euro currency.

The Euro has rallied more than 8% against the Dollar since the lows on 27th September, just a few days before the EURO STOXX 50 reached its lows. Since then, the EURO STOXX 50 index has risen more than 20% and entered a bull market, outpacing almost all major equity benchmarks, with correlation to the currency reaching the highest since April.

2022 has seen equity markets primarily driven by broad flows, as opposed to fundamentals. Since the beginning of the year, European equity funds have seen nine consecutive months of outflows, amounting to $96 billion, according to EPFR Global data.

The stronger Euro is “an appeal for Dollar-based investors” and could drive equity flows back towards the region, particularly as the majority of investors currently underweight Europe. In addition, as mentioned in the October newsletter, a weak Euro has been a tailwind for regional earnings, given that EURO STOXX firms, on average, get approximately 50% of sales outside of their home market.

During the last two months, the Fund has benefitted significantly from these flows with staggering share price movements from the lows. We touched on this in October, but the situation is obviously even more pronounced a month later.

Based on the 1st December closing price, Boozt’s stock price is up 108% compared to the low point touched in mid-September, Just Eat Takeaway up 85%, RVRC up 84%, Trigano up 66% and TeamViewer is up 65% to name but a few.

The largest contributors to November performance were: Bekaert (+1.57%), TeamViewer (+1.54%) and Ipsos (+1.22%). The Fund’s monthly performance was driven quite broadly across the portfolio with many strong contributors and only two immaterial detractors: SPIE (-0.11%) and Einhell (-0.09%).

Bekaert reported Q3 2022 revenues in November. The company clearly exceeded expectations due to ongoing strong pricing power and passing on inflation costs. They issued precise guidance for FY22, topping expectations on top-line growth and in line with the adjusted EBIT forecast. Mid-term targets were confirmed, which point to structural improvements and decreased cyclicality.

Bekaert’s valuation multiples for 2023 remain extremely undemanding with <7x P/E and double-digit FCF yields. Bekaert currently looks to be valued by the market as if it is a highly cyclical steel stock, while it has a much higher-end profile and structural improvements have been implemented.

TeamViewer also reported its Q3 2022 results in November with a good top line and strong profitability. In addition to the news of the results there were several other strong drivers recently:

1. TeamViewer received an ESG Risk Rating of 9.9 and was assessed by Sustainalytics to be at negligible risk of experiencing material financial impacts from ESG factors. TeamViewer now ranks in the top 3 out of 419 assessed companies in the “Enterprise & Infrastructure Software” subindustry.

2. As of 2022, TeamViewer received a rating of AAA in the MSCI ESG rating, improving last year’s rating from AA to the highest category of the ranking. TeamViewer is now in the top 8% of global companies in the Software and Services industry according to the MSCI ESG ratings. The latter score positions TeamViewer in the highest scoring range for its governance efforts, becoming one of the leaders among local and global players in the sector.

3. On 17th November, Petrus, which has a stake of just below 3%, called for the company to end its sponsorship deals with soccer club Manchester United and Formula One, putting activism pressure on the management team.

4. November saw two sizeable insider trades disclosed: the COO bought £320k on the 7th and the CFO bought €293k on the 21st.

Ipsos reported in October, and the stock price benefitted from the release that month. In November, the company attended a number of industry conferences and the resulting broker upgrades pushed the stock price higher. On the detractor side, there is little to be mentioned given the minor impact on performance.

Our Investment Team has travelled extensively over the past two months, attending conferences and visiting companies on site, in addition to the company roadshows received in our offices. Given the market dislocations that persist today, this exercise is generating an important pipeline of additional opportunities.

A new position was initiated in October, and another very recently. A rather long potential shopping list of other names remains that we are completing our work on.

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
+44 1481 742380

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 02/12/2022 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.