How active management can beat the stock market
Leading global stock markets haven’t risen very much over the last 22 years. Despite some peaks and...
France has a lot to celebrate, with its FIFA World Cup 2018 win last weekend. But lifting the trophy after a nail-biting final against Croatia isn’t the only reason for the country to rejoice.
Over the last year, French equities have more than quadrupled the average continental European stock market with a total return of 8.18%*.
This is partially due to the election of Emmanuel Macron as French president in May last year – likely a welcome relief for markets, given that it was a race between his centrist En Marche! party and Marine Le Pen’s far-right fascist National Front party.
Macron has also introduced a number of measures which should be beneficial for the French stock market. For example, one of the first reforms he put in place allows companies to reach deals with their own employees in terms of working hours and salary, rather than on an industry-wide basis. It also caps any damages that a court can award for an unfair dismissal. This should keep employees happy, and reduce companies’ outgoings.
He has also pushed through individual tax cuts, which means the French population should have more money to spend on goods and services. This was in conjunction with a 30% flat tax on investment income – a welcome policy for domestic French investors, given that some tax rates in the country were more than 50%.
We’ve identified four Elite Rated funds with significant weightings to French companies: here are their favourite picks.
Managed by David Dudding, this fund tends to perform particularly well during down markets. It will mostly hold large high-quality companies which can keep hold of a leading position within their market areas. French companies in its top 10 are liquor producer Pernod Ricard, software company Dassault Systemes, personal care company L’Oreal and multi-service conglomerate Elis.
Manager Cedric de Fonclare has a quality tilt to his portfolio and, again, focuses on stocks with competitive advantages. However, he will also consider more cyclical companies too, which he will trade more regularly depending on where we are in the economic cycle. The fund holds French construction company Vinci in its list of 10 largest positions.
This fund is run by Andreas Zoellinger, who will only invest in companies which are at least €1bn in size. He looks for undervalued stocks which either have a particularly high yield or are notably high quality. He aims to achieve lower-than-average volatility and an above-average yield. It holds French firms such as pharmaceutical company Sanofi and industrial group Bouygues.
Alister Hibbert’s fund is completely flexible and will invest across the entire cap spectrum. The manager uses a wide range of screening tools to sift through his broad investment universe, then partakes in thorough stock research alongside BlackRock’s analyst team. French holdings include aircraft engine, defence company Safran and luxury goods firm Kering.
*Source: FE Analytics. MSCI France versus MSCI Europe ex UK, total return in sterling terms, as of one year to 17 July 2018.