In 2021, Echiquier Major SRI Growth Europe[1] gained more than 24%, in line with its benchmark index[2]. Although the fund took a hit in the first quarter of 2021 due to factor rotation driven by sectors with limited representation in the fund for strategy-related reasons, it then caught up, fuelled by the excellent earnings reports turned in by the companies in the portfolio amid a lull on the rotation front. Among the best contributors to performance in 2021 were high-quality companies such as NOVO NORDISK, ASML and ACCENTURE[3], which are a perfect match for the fund’s DNA profile and whose performance drivers are quality, growth and excellent ESG ratings.

The beginning of 2022 has been complex. The equity markets underwent further factor rotation which was record-setting in terms of its severity amidst fears over an acceleration in the pace of rate hikes by the US Federal Reserve (Fed). The sectors reporting the best performance since the beginning of the year are energy and banking, two sectors absent from our fund for reasons having to do with its construction, while technology, manufacturing and healthcare, the most overweight sectors in the fund, experienced the sharpest corrections.
As 2021 demonstrated, such tremendous rotations are short-lived. It is our view that the markets will resume the practice of analysing corporate fundamentals.

TRANSACTIONS

Economic outlook

The first weeks of 2022 were marked by a sharp rise in US interest rates. US 10-year rates rose from 1.50% to 1.85% in a matter of days in the wake of the Fed’s increasingly hawkish intervention to curb inflation.

To respond to this environment of rising interest rates and high inflation, we increased the weighting of the cyclical growth allocation at the expense of visible growth. As a result, we added to our DSV and ASSA ABLOY positions, two high-quality companies with significant pricing power. In preparation for the reopening of all economies, we also significantly strengthened our position on VISA. We also reduced exposure to the securities most vulnerable to higher interest rates, such as CELLNEX and EDPR, and took profits on SAP, which is expected to suffer in the short term due to increased migration to the cloud.

Fundamentals

Against a backdrop of rising interest rates, we increased our exposure to financial stocks and started a position on ALLIANZ. This German group has an excellent track record of value creation, external growth, and capital management.

The current rotation period, led more by flows than by the fundamentals, is conducive to opportunism. In addition, we started a position in UNIVERSAL MUSIC GROUP, a high-quality stock which has undergone a correction that we view as excessive. In our view, the world leader in music labels has a bright outlook for growth, driven by streaming and by opportunities emerging from new technologies, with a significant share of recurring revenue.

INVESTMENT STRATEGY

In 2022 we plan to pursue our conviction investment strategy, with a portfolio of about thirty stocks. Interest rates are expected to continue to gradually rise but remain low. We continue to apply our rigorous stock picking process by giving priority to high-quality growth companies that are leaders in their sectors, that effectively manage their environmental, social and governance risks and that benefit from substantial pricing power allowing them to cope with inflation, which is expected to remain high.

[1] The decision to invest in the promoted fund should not be based exclusively on its non-financial approach and should take all of the fund’s other features, as described in its prospectus, into account. The fund is mainly exposed to the risk of capital loss and equity risk.
[2]Past performance is not a reliable indication of future returns and is not constant over time. The annualised performance of the fund compared to its benchmark index, MSCI Europe NR, was: 22.6% over 3 years vs. 15.1% for the benchmark, 13.1% over 5 years vs. 8.5% for the benchmark, 11.4% over 10 years vs. 9.3% for the benchmark and annualised performance since its creation on 11/03/2005 of 8.4% vs. 5% for the benchmark.
[3]The stocks referred to are given by way of example. Neither their presence in the fund portfolio nor their performance are guaranteed.