Deputy CIO andportfolio manager
Sectors which are well-positioned to benefit from the growing trend of the digitilisation of the economy could be an attractive investment for the year ahead.
That is according to DNCA’s deputy CIO and portfolio manager, Cyril Freu, who runs several funds at the Paris-based group, including the DNCA Invest Miuri fund. Freu said allocations to technology and outsourcing companies could be strong performers in 2017, which would also have knock-on effects for the luxury sector.
‘We think sectors which are benefiting from the digitalisation of the economy continue to be interesting investments. For example, IT companies like Cap Gemini could benefit and at the end of December we held 6.8% in the Paris-based group.’
However, Freu, who runs the fund alongside + rated Boris Bourdet and Mathieu Picard, said the team is cautious on sectors which have been considered as bond proxies in recent years. Freu highlighted the home and personal care (HPC) sector, which is dominated by brands such as Nestlé, L’Oréal and Unilever, as a market which is under pressure. ‘On an absolute approach, those sectors should continue to underperform if rates continue to rise, which we believe is the most likely scenario. We think the sectors most affected would be the HPC area and specialised retail.’
Looking to luxury
Elsewhere, Freu looks to multinational luxury goods conglomerate LVMH as an investment which delivered strong performance in 2016. ‘Our LVMH investment is a relative trade. We consider that the LVMH valuation does not reflect the company’s assets quality and growth prospects, compared to the average level of valuations on staples or HPC names.’
‘So we are long LVMH and short staples and HPC sectors through futures trades. This trade delivered excellent results in 2016 and we have recently reduced its weight from 4.6% at the end of November, to 2.6% today.’
Freu currently has main short positions in the Euro Stoxx 50 (15.3%) and the CAC 40 Index (14.8%), but said the future of the eurozone could be under threat. ‘If populist parties continue to win shares in the coming elections, it could threaten the future of the eurozone and the euro currency could be negatively impacted.’
‘It’s not our central scenario, but in 2017 we will monitor closely the Italian political evolution as well as the French and German election results.’
The DNCA Invest Miuri fund returned 9.2% in euro terms, over the three years to the end of November 2016, in the long/short equity category. This compares with a sector average of 3.9% over the same time period.
By Terri-Ann Williams. This article was finalised in January 6th, 2017.