The invasion of Ukraine and record inflation left their mark on 2022. To contain this inflation, aggravated by higher energy prices, the central banks raised interest rates sharply, prompting a rotation from growth to value stocks. This was bad for the positioning of Echiquier Major SRI Growth Europe, which by nature does not invest in oil companies, heavy metals, weapons, or tobacco, which were some of the market’s top performers last year. Conversely, it is overweight to tech and industrial stocks, which declined. The beginning of 2023 has been more positive. In the first quarter, the markets rebounded after lockdowns were lifted in China, energy prices sank in Europe, and interest rates were predicted to stabilise. However, that enthusiasm was checked by the US regional banking crisis, once SVB failed and UBS had to bail out Credit Suisse. Over the period, the fund outperformed its benchmark. It benefited from a positive sector allocation thanks to its overweight to tech and the absence of the energy sector, as well as positive stock picking, thanks to the performances of Novo Nordisk, Straumann and Lonza in healthcare, L’Oréal in consumer durables and LVMH in luxury goods.

TRANSACTIONS

• Economic outlook

We are cautious about the risks of recession from the central banks’ monetary tightening policies. Accordingly, we gradually buttressed our defensive profile, increasing our exposure to the more resilient growth sectors like health care and consumer staples at the expense of cyclical sectors, such as tech and manufacturing. We also built-up luxury goods, which should do well as China reopens, and financials, to factor in a higher interest rate environment. In addition, we initiated a position in BNP Paribas. We have long stayed out of the banking sector owing to its lack of growth, but the prospect of persistently high interest rates is changing this paradigm. For BNP Paribas, net interest income growth is expected to top 9% per year from 2022 to 2025, with a return on equity (RoE) that should grow from 10% currently to 12% in 2025. On the other hand, we sold off some positions, specifically in EDPR, that are suffering from high interest rates, and DSM because of negative momentum in ingredients. We took our profits on MICHELIN to ease the cycle.

• Fundamentals

We created a position in INDITEX. Over the past few years, the stock has been dogged by fears of an internet-related disruption that has not materialised. This offers an attractive entry point on a growth stock at a reasonable price. The Spanish giant has an operating model that’s unique in the fashion industry, with production close to customers and decentralised distribution making it more responsive and agile and gaining it more market share.

INVESTMENT STRATEGY

We are pursuing our conviction investment strategy, with a portfolio of about thirty stocks. We continue to apply our rigorous selection process, favouring growth and quality companies that have the pricing power to maintain their margins in the face of inflation that will remain high, though it has already peaked. This should result in stabilising interest rates. Under these conditions, the fund should be in a good place to navigate the current economic climate.

Adrien Bommelaer and Paul Merle, Managers of Echiquier Major SRI Growth Europe, La Financière de l’Echiquier (LFDE)

Disclaimers: The fund is primarily exposed to the risk of capital loss, equity risk, small and mid-cap investment risk and discretionary management risk.

The stocks referred to are given by way of example. Neither their presence in the portfolio nor their performance are guaranteed. The opinions expressed in this document are the authors’ own. LFDE shall not be held liable for these opinions in any way.

For more information on the characteristics, risks, and costs of these funds, and before investing, we invite you to read the regulatory documents available on our website at www.lfde.com.