A quality structure

In November, the Strategic Europe Quality Fund declined by 1.63%, outperforming the MSCI Europe by 86 bps. In markets that were disrupted by the emergence of the Omicron variant, the Fund’s structural overweight to quality stocks proved useful.

Fund Commentary
13 Dec 2021

In November, the Strategic Europe Quality Fund declined by 1.63%, outperforming the MSCI Europe by 86 bps. In markets that were disrupted by the emergence of the Omicron variant, the Fund’s structural overweight to quality stocks proved useful.

Stock selection was positive in the vast majority of sectors, with the exception of Media, where S4 Capital suffered from a lacklustre quarterly publication. The sector allocation was neutral.

Siemens Healthineers unveiled growth and margin targets above consensus expectations during its Investor Day, we took advantage of the stock’s rise to take our profits. Richemont reported excellent figures for the third quarter.

Following several years of repositioning under the leadership of Cyrille Vigneron at Cartier, the Jewellery division has achieved industry-leading growth rates for several quarters. The company also confirmed its intention to find a partner for Yoox, and thus deconsolidate its affiliate operating losses. In a more uncertain healthcare environment, Croda benefitted from its exposure to COVID vaccines.

Capgemini also performed well in the wake of a very convincing quarterly publication. The company is well-positioned to capture the growth in budgets dedicated to digital transformation and the emergence of Industry 4.0 (Digitalisation of Industrial Processes, Internet of Things (IoT), Artificial Intelligence).

The theme of electrification of energy infrastructures and buildings is present in our portfolio at different levels of the value chain. This major trend is driven by the deployment of renewable energies and the need to optimise energy consumption. Green stimulus plans are only accelerating the growth of industrial investments in this sector.

Upstream, Nexans will benefit from the boom in offshore wind (1 GW requires €300m of cables!) and the need to modernise the power grid. Beyond these windfall effects, management’s ability to gain a share in service and maintenance markets could further drive a rerating.

Schneider is at the heart of the electrical infrastructure ecosystem. The need for energy efficiency in industrial sites, data centres and non-residential buildings will fuel the company’s growth. Legrand is positioned downstream in the value chain.

One-third of sales is directly exposed to two strong trends: growing connectivity in domestic installations (Eliot range), and the search for energy efficiency (data centres, residential and non-residential buildings). These companies are likely to experience growth rates above their historical average over a long period, which fuels our optimism about their stock market appreciation potential.

The emergence of the Omicron variant increases macroeconomic uncertainty. However, the experience curve inherited from the Delta variant should limit its impact. In this context, the market’s measured decline seems rational to us.

The impact of economies reopening is still visible in activity levels with high ISMs in the United States and Europe. This mid-cycle configuration argues for a balanced portfolio structure between growth and defensives.

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.

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

The views and statements contained herein are those of Phileas Asset Management in their capacity as Investment Adviser to the funds as of 07/12/2021 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.