In April, the Strategic Europe Quality Fund declined by 1.66%. Sector allocation cost 138 bps, while stock selection contributed 38 bps.
Our overweight positions in Industrials and IT, and our underweight positions in Pharma and Energy had a negative impact on sector allocation. Since the beginning of the year, sector allocation is responsible for more than 75% of the Fund’s underperformance.
In a context marked by a rapid rise in interest rates, quality stocks with valuation multiples higher than the market average, logically suffer from their long duration. The significant repricing observed on some stocks to which the Fund is exposed leaves us with a meaningful upside, with multiples now mostly below levels seen before the 2018-2021 rerating.
The first-quarter publication season has been generally supportive of our investment cases. Over the month, Edenred, Spie, Saint Gobain, Nexans and Bureau Veritas were good contributors to performance on the back of strong results.
Spie’s Capital Market Day confirms our view that the company’s organic growth will accelerate to 4%, compared with a historical average of around 1%. Investments related to the energy transition will drive the company’s activity in the coming years. Nexans will also benefit from this major theme, with the electrification of energy infrastructures at the core.
Among the month’s poorer performers were mainly growth stocks that suffered from the impact of rising interest rates on their valuations: Sartorius, Danaher, Puma and Adyen. The fundamentals of these companies remain sound and they have returned to attractive valuation levels given their largely unchanged growth prospects.
Companies have been facing significant inflation in production costs for several months. Their ability to compensate for this pressure depends on their pricing power. This is a parameter that we integrate into our portfolio construction in order to avoid disappointments regarding the evolution of the margins of the companies in which we are shareholders.
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.
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The views and statements contained herein are those of Phileas Asset Management in their capacity as Investment Adviser to the Fund as of 10/05/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.