Cédric de Fonclare
Head of Strategy
Jupiter Asset Management
Strategy & economics
Keeping your investment strategy simple can be difficult in a complex world. Below Jupiter Asset Management's Head of Strategy (European Opportunities) Cédric de Fonclare answers our most pressing questions on the matter
While volatility has been at record lows, it is interesting to see how violently the market responds to shocks. I believe this can partially be explained by significant growth in Exchange Traded Funds (ETFs); the push towards algorithmic trading where decisions are made by complex mathematical models based on market trends rather than the underlying
value ofindividual companies.
This can lead to opportunities, such as those created when the value of some UK companies fell by up to 40% a couple of days after the Brexit vote. Many of those companies, in sectors like construction and media, bounced back quickly and are now trading well above that Brexit level. I don’t invest in UK companies within my UK-domiciled unit trust fund, but it is a good illustration of how, by focusing on fundamentals, and being on the lookout for these opportunities, it might be possible to maintain a competitive edge.
Nowadays, boring is good. There is so much enthusiasm around what are perceived as fast-growing industries, such as technology, digital payments, etc. What we like are not necessarily the fastest-growing businesses, but those with good cashflow generation and some means to protect their franchise.
It is on this basis, for example, that we have invested in a laundry company with a dominant market position. It is able to push through small price increases in an environment where more and more of its core customers outsource laundry.
Similarly, we have invested in a company that specialises in physical cash handling in emerging markets like Latin America, where large proportions of the population are still unbanked and cash usage is growing at a healthy pace. These may be boring, but they are, in our view, cashflow generating, strong businesses that should be able to deliver profitable growth over the long term.
Politics and economics have receded as the headwinds in Europe. Leading indicators are showing some improvements and populism has suffered setbacks in recent elections across the continent. Headwinds are more market-related today, with high valuations linked across different asset classes due to market distortions created by monetary policy. This shows the need to be disciplined.
With the FTSE World Europe Index up about 7% in the year to the end of July, and some analysts forecasting European earnings growth in the region of 14% for the full year, there could be room for some further share price rises. But European exporters are likely to face more pressure from a strong euro and less favourable commodity prices in the second half of the year. I wouldn’t expect the market to rerate much further and I believe that we will have to be selective at the stock level.
Investing in any asset class is hard enough, but at least within equities, for example, you can base your analysis on company fundamentals. When it comes to currencies, this is more difficult because currencies are linked to political decisions that you cannot forecast. There have been a lot of competitive currency reductions around the world.
Our response to this is to build and maintain a diversified portfolio of companies, some with domestic and some with international business models. In the case of the exporters I hold, I try to make sure that, first, they don’t have a disadvantageous cost base versus their revenue base cost; and, secondly, that their competitive edge is not only driven by price leadership that could be challenged by cheaper exporters but rather by trading in differentiated products and services.
Becoming a European fund manager was never my career plan. My hope on leaving university in 1998 was to work in Asia. Then the Asian crisis happened, which should demonstrate that market timing was never going to be a specialism of mine. Nevertheless, coming through the ranks at Jupiter Asset Management, driven by an interest in companies and having a curious mind, was an opportunity I could not afford to pass up.
I am very mindful that the money we manage for our clients represents hard-earned savings for many different people; therefore I spend as much time thinking about the downside risk as I do about the upside. The highlight for me would therefore be those years where we have been able to outperform peers, with lower volatility. Reducing the loss during a time of crisis (such as 2008) also feels very rewarding.
I do not run marathons or climb mountains, but for me, my sense of achievement in life always comes back to the people around me. I am grateful for having strong support from my family and a close group of friends from diverse backgrounds. Maintaining these relations alongside a demanding career, while trying to pass on to my children some core values of open-mindedness and equipping them to adapt to a fast-moving world, is an ongoing task that I would value among my greatest achievements.
Spending a lot of time in a fastmoving industry, I enjoy a change of pace outside of work. One of my favourite ways to spend the time is at sea because it is an environment where you have to accept that you cannot control the conditions around you and you have to adapt to its pace. Obviously this is not available in London, but I still like to get out into open spaces, even just for a walk in the park.
Head of Strategy
Jupiter Asset Management
This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.