e-fundresearch.com: After a dry spell for value strategies, value finally managed to “rise from the dead” in 2016. Even more interesting, your strategy “Mandarine Valeur” managed to finish the last calendar year at the top of all European equity strategies. A big relief?
Marc Renaud: Yes, a huge relief and a big satisfaction because underperforming the market for several years is not easily acceptable, neither for our investors nor for ourselves as fund managers! But this return to grace of both the value investment style and of our Mandarine Valeur fund reassures us in our belief that over the long run, markets and stock market valuations return to their mean, which is the quintessence of our investment philosophy.
Chart: Mandarine Valeur vs. Peer-Group-Average 2016
Peer-Group Screenshot - Calendar Year Performance 2016:
e-fundresearch.com: Apart from value-outperformance: From Brexit to Donald Trump - what are your personal lessons learned from last year’s market developments?
Marc Renaud: Probably driven by increasing signs of an economic rebound in Europe and the perspective of rising interest rates and an end of the ECB’s accomodating monetary policy, the market was in such a stable mood that potentially disruptive events such as the Brexit referendum in June, the rejection of the constitutional changes as proposed in the Italian referendum in December and last but not least, Donald Trump’s election in the US did not lead to market downturns – on the contrary, despite all these uncertainties, markets have shaken off these threats to our economies and societies, and volatility was low over the year.
From a purely rational point of view, all this is difficult to understand and the lesson I learnt is very simply that you cannot assume or predict anything with respect to future market developments, which makes it all the more important to stick to your proven investment process, which means, for Mandarine Valeur, to detect and understand undervaluations and triggers for a potential price increase.
e-fundresearch.com: Which particular investment themes have delivered the strongest performance contribution in 2016?
Marc Renaud: From a performance attribution perspective, it is the basic resources (ArcelorMittal, AngloAmerican, BHP Biliton) which contributed most to Mandarine Valeur’s excellent performance in 2016, and this is also the sector which benefitted most from last year’s sector rotation. We also gained a lot of money with oil&gas stocks such as RDS or Technip. In this sectors, both our allocation and the stock selection contributed very positively to the fund’s performance.
e-fundresearch.com: With regards to the new year 2017: How optimistic is your view into the future and why will value continue to outperform in this environment?
Marc Renaud: Well, unfortunately I do not have the crystal ball either but I would say that, provided that the European economic recovery continues and that interst rates are continuing their rise, the perspectives for the value style are good. Although many of the excessive undervaluations in European equities are no longer present, there are still areas of undervaluation – and, as a result oft he sector rotation, even former «growth» stocks and more defensive names have become «investable» according to my process, such as Gemalto, Smith & Nephew, Essilor or Air Liquide. This means that my portfolio has become much more diversified and no longer relies on the very cyclical stocks such as materials or energy. Also, if you look at it from an EPS growth perspective, most analysts start their annual previsions with a double digit figure only to adjust it to reality over the year – in 2016, the consensus started with +10% and ended the year at 0%). This year, it seems as if the current EPS growth consensus of 14% might be realistic, since we no longer need a contraction in the risk premium for companies’ valuations to go up, their profit forecasts are generally positive, and this coincides with what we hear from companies themselves.
