What is the outlook for bonds and equities in 2023?
As 2022 draws to a close and we head into 2023, our Elite Rated fund managers and companies share...
With travel to Europe this summer looking unlikely for many, we decided to bring Europe to our shores instead – asking four of our Elite Rated European fund managers for their favourite mainstream and ‘off the beaten track’ ideas.
Mainstream destination: Heineken, Holland
“Heineken is one of our Covid-cyclical recovery stocks – profit margins fell last year as the highly profitable bar/restaurant trade shut. The new CEO has launched project ‘Evergreen’ to shake things up. He thinks he has found €2bn of gross savings. This is not only from a headcount reduction of 8,000 (9% of the workforce!) but also complexity reduction, including a one third reduction in stock-keeping units in some markets and a focus on digitisation. Gross cost savings never totally filter through to the bottom line, but we think management have been very conservative. A potent mix of economic recovery, a leaner cost base and a sales boost from enhanced advertising spend should lead to a stronger than expected profit recovery.”
Off the beaten track: Fraport, Germany
“We have followed Fraport (the airport operator) for many years and liked the utility nature of its earnings, but we kept it firmly on our watch list as we disliked the company’s lack of cost control. One of the few benefits of the pandemic is that it is given a number of sleepy companies a huge wake-up call – it seems almost unbelievable that it is taken this crisis for Fraport to realise it has about 20% too many employees, for example! We bought the stock a little early in March 2020 when it was one of the most heavily shorted stocks on the German market. The stock did nothing until the vaccine news broke, but in our view is still very cheap.”
Mainstream destination: Arcelor Mittal, Luxembourg
“Arcelor Mittal is a world leading steel manufacturing company based out of Luxembourg. It is a good example of how we think about ESG in terms of rate of change: we seek to apply our clients’ capital to those areas and companies which present a credible decarbonisation strategy and, moving forwards, look to hold them accountable for their timeline and targets. Arcelor Mittal is a prime example of this with two routes it has presented (Smart Carbon and Green Hydrogen) to decarbonising the steel production process and, along with their top-line route to achieving net zero carbon by 2050.”
Off the beaten track: Mowi, Norway
“Mowi is a leading Norwegian producer of Atlantic salmon and seafood. This stock combines several tailwinds including long term demographic demands, short term re-opening demands, quality management and supply constrained by an availability of suitable waters. On the ESG front, seafood has a lower carbon footprint than land-based proteins and is rich in omega-3 fatty acids. Seafood is human-, planet-, business-friendly and Mowi continues to invest in areas to improve its credentials.”
Mainstream destination: FinecoBank Spa, Italy
“FinecoBank, the Italian online investment and banking platform, offers a one-stop shop for financial products to customers via a network of financial advisers and its online capabilities. The company has an internally developed IT platform which offers significant advantages versus peers in our view, long-term committed management, an attractive open architecture model and typically offers Italian savers a more reasonable fee structure than competitors. Key pillars to our investment thesis include its superior product breadth, functionality and price relative to incumbent legacy banks; its ability to continue to grow market share as a result of innovation and price leadership; potential revenue growth; and strong execution and expansion into new markets.”
Off the beaten track: Post NL, Holland
“PostNL is Holland’s leading postal logistics operator. It is responsible for sorting and delivering the majority of parcels and mail in Holland through its network of fulfilment centres and postal delivery teams. We believe it’s a stock at an attractive juncture, well placed to grow ahead of market expectations and simultaneously drive a re-rating in valuation multiples. It has transitioned from a structurally challenged market, Mail, to a growth market, Parcel, leaving the company well placed to grow from here following years of stagnant earnings progression. It also has a 60% market share in the Dutch postal market and its asset base is well invested with a high degree of automation affording it cost, functionality and speed advantages.”
Mainstream destination: Novo Nordisk, Denmark
“Novo Nordisk is the world leader in medicines for diabetes and it has now set its sights on obesity. It is estimated that 650m people around the world suffer with this condition and only 2% of this set of patients are treated. Novo has developed drugs with very strong efficacy here with some patients benefitting from 15-20% weight loss by taking a once-weekly injection of Novo’s treatment for around 18 months. This product is currently being reviewed by regulators and given it is already on the market for treating diabetes, we are confident that it will be available to obesity patients at some point in the near future. Novo has a strong culture and long-term mindset when it comes to research and development and we look forward to watching its sales expand significantly – if not the waistlines of its patients.”
Off the beaten track: Allfunds Group, Spain
“Allfunds is a technology platform that sits between fund houses, like Jupiter, and fund distributors/wealth managers. With 1,960 fund houses on its platform Allfunds provides its customers with a one-stop-shop and instant access to the broadest range of funds in the market. Its customers essentially get this access for free and benefit from Allfunds’ purchasing power when it comes to management fees. While the fund houses pay a fee to be on the platform, they benefit from a single relationship which gives them access to a massive network of 1,500 international distribution partners with assets of ca. €1.2 trillion. We expect Allfunds to grow significantly in the coming years as more distributors look to broaden their product offering through third party funds while simplifying their supplier relationships.”