Fonclare: The current market is characterised by the level of uncertainty over future earnings as companies still have limited visibility. There is the question of excess capacity in a number of industries and what will be the impact of that on pricing and margin.
In this environment we are looking at a range of criteria over the mid to long term. In an environment of uncertainty over margins and future growth prospects, price-to-sales ratios are useful. We also look at conservative measures such as the cyclically adjusted price-earnings ratio that compares current stock prices to the average earnings of the past 10 years, which helps to smooth out the effects of the economic cycle. We also consider balance sheet strength to be important, by giving companies greater flexibility, when more highly leveraged peers are more constrained.
e-fundresearch: How do you interpret these facts & figures and what do you expect from the European equity markets in the next 6-12 months?
Fonclare: As you would expect in the first phase of a rally, the market has been driven by liquidity and momentum. There has been strong performance by higher beta names i.e. those companies which are the most financially and operationally geared businesses. People have been surprised by the strength of the equity market but given low returns from cash, limited exposure to equities by large investors and strong outflows out of equities in recent times, all within a low interest rate environment, we feel there is still money around to be invested into equities.
The momentum of corporate earnings is likely to surprise on the upside. This is because the year on year basis of comparison will be more favourable in the quarters ahead as analysts have been setting estimates on lower macro expectations, while many economic indicators have improved since the beginning of the year.
From here to the end of the year we expect the market to remain healthy. For 2010, the question remains about top line growth as companies may surprise having realised they overcompensated on cutting costs.
The issue of quantitative easing and similar attempts to ease credit will continue to have an impact of markets over the next 12 months as the effect of the money injected into the economy by central banks will work its way through the system.
We expect visibility to remain low despite reasonably supportive valuations.
e-fundresearch: Which over- and underweights do you currently hold?
Fonclare: We have an overweight position in industrials because they are geared towards an economic recovery and are currently, in some cases at least, cheaply valued in historical terms. This is in line with our strategy of focusing on companies with pricing power and strong balance sheets.
We are underweight European commercial banks because further recapitalisation is needed e.g. through rights issues.
e-fundresearch: Please comment on the performance and risk parameters of your fund in the current year as well as over the past 3 and 5 years.
Fonclare: In the year to date we have been suffering, relatively speaking, as we are experiencing a strong high beta market rally. This is to be expected as it goes against our quality approach. The fundamental approach has not been rewarded as investors chase low quality, highly geared companies. However, in our view, doubt remains over some share valuations as they assume a V-shaped recovery, which seems unlikely. After this first phase of the rally, we would expect more polarisation at a company level between winners - who can invest counter-cyclically - and losers.
Over a three to five year time horizon we have demonstrated that, through our stockpicking approach, we add value both in comparison to our peers and against the benchmark.
e-fundresearch: Do you expect inflation or deflation in the coming 6-12 months?
Fonclare: Inflation looks likely to remain subdued in the short term as unemployment pushes down expectations and while so much spare capacity exists.
e-fundresearch: Thanks for the interview!
Mehr Informationen und Analysen finden Sie im Artikel "Die besten Europa Aktienfonds"! (05.10.2009)
