Performance Review 2006
Philippe Chaumel: "During the year 2006, we kept an equity exposure quite low around 70%. Indeed, after 4 years in a row of bull markets, we believed that markets had reached historical high levels of valuations. The fund slightly underperformed its index by 5.24% but with a limited level of risk."
Performance Review 2007
Philippe Chaumel: "Like in 2006, the fund kept a defensive allocation in 2007 and outperformed its benchmark by 1.95% with a controlled level of risk."
Performance Review 2008
Philippe Chaumel: "The year 2008 well illustrated our ability to generate alpha even in bear markets. He outperformed its index by 16.33%, benefiting from a very defensive allocation."
Performance Review 2009
Philippe Chaumel: "After the collapse of markets in 2008, we gradually increased our equity exposure in the fund. We believed at the time that markets were offering strong convexity of investments. Our strategy was worthwhile since the fund outperformed its index by 11.84%."
Performance Review 2010
Philippe Chaumel: "The fund outperformed its benchmark by 1.73% in 2010 primarily due to good stock selection and a high equity exposure."
Performance Review 2011
Philippe Chaumel: "Within our Eurozone large cap equity management, the portfolio managers follow a conviction management, independent from the reference indexes and mostly contrarian. Then, in case of periods of strong excess market, as we are currently facing since last summer, the fund can underperform its benchmark. Moreover we tend to anticipate too early the trend and to outperform temporarily in economic downturn phase.
The recent underperformance, mainly generated during the 2011 summer, is due to a high equity exposure, with a maximal investment rate. The performance of R Conviction Euro was penalized by the collapse of markets during the 2011 summer."
Performance since 2006
Philippe Chaumel: "The strong volatility of markets over the last years and the very diverging behaviors of asset classes and sectors have offered to a conviction and contrarian management which relies on fundamental analysis, important investment opportunities that enabled to generate significant outperformance."
Investment Process and Strategy – How does the Fund Manager invest?
Philippe Chaumel: "Our European large caps equity expertise is an active, high conviction strategy. The main performance driver is stock selection, relying on a bottom-up approach, based on a fundamental analysis of companies designed to take advantage of undervalued securities, especially in terms of profitability. Higher conviction stocks are supported with strong portfolio weights instead of investing according to a benchmark. Yet, the top-down aspect is important to better understand the impact of some economic factors on the forecasted profitability of each sector: interest rates, currencies, GDP growth, etc. The portfolio managers will integrate risk management at all levels of the investment process.
The investment process is focused on the in-depth fundamental analysis of companies, while integrating the central macro-economic scenario. This process is handled by the two senior portfolio managers with the cooperation of the four “buy-side” financial analysts. It breaks down into four main steps and leads to concentrated portfolios of around 50 positions. Hence the investment universe is first filtered in order to discover investment opportunities that will be deeply analyzed in the second step of the process. Finally the portfolio managers select stocks with a strong convexity and construct the portfolios."
Philippe Chaumel: "Even if the performance of the funds was penalized by the decrease of markets during the 2011 summer, we believe that now the fund is very well positioned to profit from a market rebound. Indeed, contrary to the decrease of indexes observed in 2008 or 2000, the markets did not show any speculative bubble on valuations or profits. Consequently, we believed that risk premiums were sufficient to justify maintaining our positions on equities in a context of moderate economic growth with an increase in companies’ results of 10%. Furthermore, the financial situation of companies was quite sound with a debt ratio on equity of 45% against 75% in 2007. Valuation of companies, with 10 times 2011 results in the Eurozone, seemed to integrate a strong part of uncertainty. Unfortunately, the conjunction of uncertainty on economic growth, notably in the US, and of the difficulty of the European politicians to resolve the sovereign debts crisis, has created a stress wave that gives the prospect of a “double dip”, a fall in the economic growth. These uncertainties lead to a decrease of the CAC 40 index with an unequal rapidity. Even if the market consider this scenario is likely to happen in more than 60%, we believe it ignores several positive elements:
- The first one is the decrease in commodities prices, which is going to give back to households a part of the purchasing power lost during the first semester.
- The second one is in favour of a gross recovery is the historical low level of interest rates. Following the Ben Bernanke speech, we know that the US monetary authorities will keep the key rates “sustainably low” until 2013. This strategy should allow reducing the debt cost for households, which has already decreased by 2.5 points of disposable income since 2007, back to the 1985 level. Today, the issue of politicians is to try to transfer this decrease in rates into the real estate market in order to stabilise the prices.
According to us, we think these two elements should favour the growth in the mid-short term. In the Eurozone, we believe that the fears concerning budgetary consolidations and the depressive impact that they could have on growth are excessive. But we assist here again to the positive effect of the decrease in commodity prices. In addition, when budgetary consolidation measures concern a decrease in spending or an increase of taxes on financial or real estate investments, the impact on consummation is lowered, a decline of the saving rate leading to a negative effect on consummation that is much diluted.
These elements let us think that a turnaround of the economic sentiment is very likely, and that, after having anticipated the worst, markets could correct their forecasts and consider a moderate growth scenario, which constitutes the most favourable trend to reduce imbalances, without causing strain on interest rates."