Growth and portfolio diversification potential – along with attractive valuations, euro vs. US dollar and accommodative monetary policy – are reasons why investors may find European equities attractive. Consider these two distinct equity approaches provided by Natixis Global Asset Management.
High-conviction European equity investing
Award-winning European specialist boutique DNCA Finance has followed a consistent investment process based on fundamental active management for more than 15 years. Their philosophy remains focused on high-conviction European securities with an eye toward long-term risk-adjusted returns.
Seeking value across European companies
European Value team manager Isaac Chebar believes DNCA’s rigorous stock selection through fundamental analysis across all market capitalizations is a key differentiator for the firm.
“Consistency in the investment process throughout various market environments, in-depth analysis and special attention to volatility control is integral to our success,” said Chebar. Being benchmark agnostic and focused on mid- and long-term performance is critical, too.
Growth momentum in European equities
European Growth team manager Carl Aufrett thinks European equities remain one of the most attractive asset classes. “We take a highly active approach to find attractive growth potential among quality companies. Most of the companies we follow, we believe, have little or no correlation to the European economic cycle and tend to follow more independent growth trends,” said Auffret. These companies are European, but they generate a large amount of their sales internationally.
More information on DNCA’s high-conviction value and growth approaches can be accessed at www.ngam.natixis.com.
Low volatility European equity investing
Seeyond employs an active model-driven approach that seeks to capitalize on risk to create value. Its minimum variance approach is an investment style designed to provide equity market exposure but with less risk than the overall market by investing in low volatility stocks.
“We believe uncertain market conditions are driving a growing demand for minimum variance equity strategies,” said Emmanuel Bourdeix, head of Seeyond and Co-CIO at Natixis Asset Management. These minimum variance strategies focus on investing in low-volatility stocks that have little correlation to each other. They typically therefore have lower volatility than the market capitalization-weighted indices used by many investors. “I think many investors would be surprised that the most volatile stocks have typically underperformed the least volatile stocks over time,” said Bourdeix.
Low volatility doesn’t mean minimal returns
According to traditional portfolio theory, taking less risk by purchasing low-volatility stocks should reduce performance. But Seeyond’s research shows that low-volatility stocks have generated about the same long-term returns as the main indices, but with far less volatility. Why is that? “We believe this anomaly is directly linked to the bias in the financial behavior of equity investors. They tend to overpay for the ’glamour stocks,’ overpaying for discovering the next big tech name or rising star, at the expense of the so-called ’boring stocks.’ And typically, over a full market cycle, these low-volatility stocks tend to outperform the overall equity market.”
With volatility capable of rising at any time, it’s important to remember that there are ways to make the equity component of portfolios more resilient.
For more on Seeyond’s low-volatility approach to European equity investing, go to www.ngam.natixis.com.
*Seeyond is a brand of Natixis Asset Management, operated in the U.S. through Natixis Asset Management U.S., LLC.
Risks: Equity securities are volatile and can decline significantly in response to broad market and economic conditions.
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