Lyxor Asset Management has released its European Funds Focus, Q2 2019 in a report compiled by Vanessa Bonjean, Senior Fund Analyst.
Following the market rally in Q1 2019 (+12.8% for the MSCI Europe index*), European equity markets’ progression paused, ending the quarter up +3%. The resumption of tension over trade wars and core bond yield continuing to fall led the market to sell-off in May before stabilizing again.
In this context, the outperformance of Growth versus Value, which continues (+5.6% for the MSCI Europe Growth* index, versus +.2% for the MSCI Europe Value* index), was exacerbated during May’s market drawdown as cyclical value massively sold off. Small Caps* slightly lagged the broader MSCI Europe index, with the Euromoney European Smaller Companies index* up +2.4% over the quarter, though it is worth noting that Mega Caps outperformed.
At the sector level, technology, industrials and consumer discretionary performed the best, whilst traditional value areas of banks, telecommunication services and energy lagged.
Investors continued to sell out of European equity UCITS funds (domiciled in Europe – Morningstar category) in Q2 2019, with EUR 14.1 bn net outflows observed in April and May, following the material EUR 25.6 bn of net sales of the first quarter in a context of the European equity market rebound. Overall, the negative trend towards European equity UCITS funds’ flows that began in Q2 2018 has not lost ground, totalling EUR 75.5 bn net outflows so far.
Following on from what was observed in Q1 2019, quality and growth positioned funds benefited from style bias tailwind and were again the best performers within Lyxor selected funds’ universe. Echiquier Agenor Mid Cap Europe, seeking to invest on a concentrated portfolio of Growth Mid-Caps, was the best performer over the quarter, also benefiting from a robust stock selection through several strongly outperforming stocks such as Cellnex (telecoms), AAK (food producer) or Interxion Holding (infrastructure software) and a cash position (20%) which acted as a buffer in the May 2019 selloff.
The Large and Mid-Cap Growth funds, Allianz Europe Equity Growth, Jupiter European Growth and Renaissance Europe, were also strong performers. Jupiter European Growth benefited from holdings in Wirecard (electronic payment), Intermediate Capital Group (private equity) and RELX (information services), whilst Allianz Europe Equity Growth’s positions in SAP (software), Kingspan (construction) or DSV (logistics) led the way.
Renaissance’s outperformance was driven by Experian (information services), Essilor Luxottica (luxury goods) and Sika (construction material). In the same way, BlackRock Continental European Flexible, being flexible by nature and clearly positioned toward Growth since 2018, continued to benefit from this positioning as well as positive stockpicking including Sika (construction material) and Ferrari (luxury goods).
As valuation discrepancy between Growth and Value areas continue to increase, portfolio managers too continue to carefully monitor growth companies’ ability to deliver the earnings growth requested to justify current valuation level.
*Indexes performances Net TR, in Euro
