Boldness and Prudence: LFDE's recipe for alpha generation

La Financière de l’Echiquier (LFDE), one of France’s leading asset management boutiques, has forged its expertise in the field of European small and mid-caps. Meeting with a passionate clear-headed team which embodies the conviction culture of LFDE, an investor in companies for nearly 30 years.

What is distinctive about your approach?

Stéphanie Bobtcheff : We have a unique blend of boldness and prudence grounded
in the teamwork of our 3 managers and 2 analysts. Our stock-picking – which has always been LFDE’s DNA – is based on a proprietary methodology and in-house research. We invest in European growth mid-caps and every investment decision is taken collegially to avoid personal bias.

How do you select your stocks?

José Berros : The universe is abundant with possibilities which is thrilling for us as stock- pickers. We like disruption stories, which can be takeover targets, and invest in ambitious growth stories, this via a strict and selective process. Meeting the management of these companies is key, so we travel all round Europe to understand their businesses, their vision and their strategy on a 3-5-year horizon. At least two members of the team, including our analysts, Mathieu Barbara or Philbert Vessières participate. Our highly disciplined investment process is made up of 3 steps: the first reduces the universe by applying ESG and quantitative filters taking into account liquidity and operational performance. The second step includes fundamental analysis and meeting with the management. Finally, the portfolio construction helps us manage the weight of a stock, set strict target buy and sell prices and map the portfolio based on the type of investment cases (long term winners, breakthrough projects and special situations). Our portfolios are concentrated and include a substantial cash position so we can react quickly and opportunistically to new investment ideas.

All your portfolios are covered by ESG analysis and one is SRI certified. What are the benefits? 

Stéphanie Bobtcheff : We are convinced that integrating ESG criteria creates value. It enhances our knowledge of the companies and the selectivity of our stock picking, which we see as decisive factors if we are to outperform in a demanding environment. SRI is a powerful risk-management tool.Echiquier Agenor SRI Mid Cap Europe1 whose objective is to combine performance, ESG issues and volatility management, was SRI certified in 2019. Even before this, the principles underlying LFDE’s methodology were part of our investment approach, with historical exclusions and close attention to governance. Certification was a natural next step. We analyse governance internally and vote at all AGMs.

How do you explain the outperformance of your small and mid-cap funds during the crisis?

Guillaume Puech : Our positioning in long-term winners, firms that can sustain high profitability over the long term, and our highly selective approach to stock-picking has helped shield us and some stocks have mounted remarkable rallies (Sartorius, Diasorin, Cellnex). We reduced exposure to crisis-sensitive stocks and seized on the March/April market slump to open positions in a number of good growth stocks (Ch Hansen, Edenred) and some more resilient defensive stocks (Britvic, Croda). Our outperformance2 is also partly explained by our substantial 18% cash position at the start of the year.

What are your preferred sectors at the moment?

Guillaume Puech : Our growth positioning means we have strong stakes in consumer, technology, healthcare and medtech sectors. We have no geographical bias. Stock-picking rules!