With more than 4.5 billion euros in assets, small & mid-cap management is emblematic of the stock-picking done by La Financière de l'Echiquier, investing in companies for 30 years.
By Stéphanie Bobtcheff, Fund Manager, La Financière de l’Echiquier1
One of its flagship funds, Echiquier Agenor SRI Mid Cap Europe, selects European growth stocks with the best ESG profiles. This multi-award-winning fund is managed by five experts and applies conviction-based management.
This fund saw a solid increase in inflows in 2020, during a year of outflows for the asset class in Europe. And while 2021 began with a sector rotation towards value, the team remains confident about the outlook for the rest of the year: the recovery should be a boon for these domestic stocks, which are bringing in positive flows after losing ground for two years. M&A is also expected to be buoyant.
Solid Track Record
The investment management process is highly disciplined in its valuation and weighting management. By including ESG criteria, we enhance our understanding of these companies as well as the selectivity of our stock-picking – two decisive factors for creating value in a demanding environment.
We invest in a limited number of projects we consider ambitious, which are selected for their ability to generate value, regardless of the cycle, and for the quality of their governance. This bold yet circumspect approach has been very successful for us.
Echiquier Agenor Mid Cap Europe closed 2020 up 13.6 percent, 920bp ahead of its benchmark, scoring a sixth consecutive year of outperformance, with an aggregate performance of +113 percent (I share +139 percent) since 31 December 2014, vs. 72 percent for the MSCI Europe Small Cap2. With nearly Euro 900 million in net inflows in 2020 and a performance effect of +14 percent, AuM reached Euro 2.5 billion at the end of 2020.
Nuggets With High Potential3
The pool is high-quality, with stocks like Euronext, DiaSorin, and Neoen, close to their drawdown. Euronext, which will acquire Borsa Italiana and published Q1 2021 earnings over 10 percent higher than expected, and Neoen, a renewable-energy player whose price has risen fourfold since its IPO in 2018, was penalized by the announcement of capital increases meant to finance their growth plan.
While investors are focused on the impact of the slowdown in Covid testing, the fundamentals of DiaSorin, a leader in in-vitro diagnostics, are solid. By acquiring Luminex, it can now move into molecular diagnostics on multiple tests.
A Bright Outlook for 2021
This sector rotation, which will be brief, can be pinned on the valuation gap between growth and value, and on the anticipated V-shaped economic recovery. This anticipation has increasingly shown up in the macroeconomic, then microeconomic figures in excellent corporate earnings.
Although we were penalized in relative terms due to structural overexposure to growth sectors, the portfolio’s securities continued to post excellent results – exceeding expectations – and the portfolio’s net asset value remains at an all-time high.
In the short term, in an environment of stabilizing rates, factor impacts are expected to reduce, and outperformance will once again be generated primarily by stock-picking. The recent drop in certain stocks offers the opportunity to re-weight growth stocks whose valuations are becoming more appealing again, against a backdrop where cyclical stocks are less attractive.
In the medium term, the quality of fundamentals and the growth in earnings, whatever the economic conditions, will still be the main performance drivers in the small and mid-cap segment.
1The Fund is primarily exposed to the risk of capital loss, equity risk, and small and mid-cap investment risk.
2Past performance is not a reliable indication of future returns and is not constant over time. YTD performances at 30/04/2021: 4.8 percent vs 13.7 percent for the benchmark
3The sectors and securities mentioned above are given by way of example. There is no guarantee they will remain in the portfolio over time.
