Bull market characteristics persist in Europe
Valuations of European stockmarkets remain reasonably attractive, with a current aggregate rating at a level historically consistent with positive, low double-digit subsequent annualized performance.
The stock selection strategy of the Argos European Systematic Long Short Equity Fund is the result of a purely bottom-up analysis that exclusively relies on strict and objective financial criteria encompassing 1,700 western European companies.
The managers consider that technically, European indices continue to show many characteristics of a bull market. Recently, of the selected stocks held in the long leg of the strategy, 48% had a positive absolute price performance and 35% showed a price performance above that of the Stoxx 600 Europe index.
Five stocks rose by an average of +13%, representing the largest positive contributors to the strategy’s long leg performance. These were STMicroelectronics, Atos, Gurit, Outokumpu and Lloyds Banking Group.
STMicroelectronics continued its strong performance after announcing stronger than expected earnings and a favourable outlook for the year. Atos produced quality numbers for 2016 underpinned by a well-received three-year strategic plan. Gurit shares made up ground lost earlier in the year after clumsy communication to investors following 2016 results.
Outokumpu shares have continued to outperform in the wake of strong earnings, and compelling communication around the start of the implementation of their newest share buy-back programme.
The stocks with the most negative contribution to the Fund’s long leg monthly performance were Société Générale, BHP Billiton, Sacyr, Natixis and KappAhl. Société Générale, Natixis, and BHP Billiton gave back some of their previous extremely strong performance like many high beta, interest rates sensitive stocks.
Spanish construction company Sacyr, builder of the expansion of the Panama Canal, published an H2 2016 set of numbers showing a 13% rise in EBITDA, that nonetheless was accompanied by some profit taking after a 30% rise in the share price over the previous six months.
The portfolio strategy has so far favoured companies with their roots in countries with stable AAA sovereign ratings, according to both S&P and Moody's (i.e. Denmark, Germany, Netherlands, Norway, Sweden, Switzerland).
These countries’ overall economic environments support companies that generally benefit from low funding costs, pro-business and stable regulatory and fiscal policy, better governance, transparency, and Socially Responsible practises.
The firms tend to have a productive workforce and highly attractive domestic markets (with high GDP/capita ratios, low unemployment rates, and sophisticated customers attracted to innovative and high quality products and services).
In the event that sovereign debt issues re-ignite in Europe, these stocks would probably be less directly impacted than those based in less attractive countries.
All these factors can be considered as competitive advantages over the very long term over competitors based in less advanced countries elsewhere in Europe or in the world.
Notes to Editors
About QUAERO Capital
QUAERO Capital is an independent Swiss fund management firm founded in 2005 as “Argos Investment Managers S.A”. Renamed in 2015, the firm’s approach is to identify and foster innovative, independently minded, investment teams who use original research to provide actively managed strategies to potential clients in the institutional and wholesale markets.
A team of 32 people includes 16 experienced investment professionals. It is a 100% employee-owned company. The main shareholders are Cristofer Gelli, Philip Best, Jean Keller and Thierry Callault. QUAERO is regulated by the FINMA, the Swiss Financial Markets Authority. It offers a range of high conviction investment strategies spread across 12 funds in two Luxembourg SICAVs (a Part I-UCITS and a Part II).
If you would like more information about the Argos European Systematic Long Short Equity Fund, please go to www.QUAEROcapital.com
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