Comments on the thematic funds


Our thematic strategies continue to experience high volatility, with many concerns worrying investors. Since its peak on 19 November 2021, the Nasdaq has lost 21.7% – a bear market – a fall that has been amplified in our funds, given their positioning on smaller companies, their hyper-growth profile and their low or even negative operating profitability (EBIT).


Chinese stocks have experienced a widespread sell-off in recent days

The Hong Kong index, the Hang Seng China Enterprises, recorded on Monday 14 March one of the worst daily falls since the 2008 crisis (-7%). The decline was even greater for technology stocks listed in the United States (Nasdaq Golden Dragon China Index), which have fallen by 75% since their highs a year ago[1]. They are suffering from several factors. On the one hand, China’s possible support of Russia through the supply of military equipment raises fears of possible economic sanctions against China, which would be very detrimental to investment in Chinese shares. The Chinese regulator also took a hard stance: it banned DIDI’s application for a listing in Hong Kong on the pretext of insufficient governance of its users’ data. Finally, the market took fright last week about the potential ban on Chinese ADRs in the United States. Indeed, while the Foreign Corporation Responsibility Act of 2020 (HFCCA) requires companies to adhere to this law and thus comply with requests for audit reviews by US regulators for 3 consecutive years, Chinese law prohibits auditors from providing their opinions to US regulators. Kafkaesque situation…

A complicated situation combined with a new style rotation impacting high growth and/or high multiple and/or low/non profitable (EBIT) stocks.

In this context, our thematic funds were penalised, with significant declines. This was particularly the case for Echiquier World Next Leaders[2] , whose exposure to China is more significant.


What do we do?

Firstly, while we remain fully convinced of China’s ability to become a major global leader in innovation, we are aware that the environment will not be favourable to Chinese companies in the short term.

Exposure to China, which stood at 13% in Echiquier World Next Leaders, has been reduced to around 9%, following the exits of AGORA and KINGSOFT CLOUD, as well as reductions in several other stocks, notably WUXI LEAD. We are retaining WUXI LEAD[3] for the company’s qualities, its resilience and its position as the undisputed leader in the equipment needed to manufacture electric batteries. The nature of its stock – which is listed in mainland China via A-shares – relatively protects it from short flows into US ADRs or Hong Kong-listed stocks.

Echiquier Artificial Intelligence‘s exposure to China[4] is already very low, after several reductions (currently 2.4% in the portfolio with two stocks[5] ).

We will return to China once the turmoil has passed, if we feel that local regulators are less restrictive towards Chinese companies and have officially pronounced themselves on the issues of ADR delisting or the legal situation of VIEs (offshore structures allowing investment in mainland Chinese companies). When the dotcom bubble burst, the decline was around 78%; with the Nasdaq Golden Dragon China Index down 75% from its highs, we believe that the worst is probably behind us. But it will take time for the country to become more investment friendly again.

Recent publications confirm our vision and the robust growth of our companies: the vast majority of the results published so far by the companies in the Echiquier Artificial Intelligence and Echiquier World Next Leaders portfolios have exceeded expectations, and the vast majority of forecasts announced are also above expectations.

The many meetings we had with our companies in California last week (about 30) confirmed a very healthy fundamental picture that is much better than expected. The business leaders we have met confirm that they are seeing very clear, very strong and very sustainable demand signals.

In addition, EV/Sales multiples for the software sector[6] , currently at 9x next 12 months’ revenue, have corrected sharply to below pre-COVID levels (11x in February 2020). And the growth of the sector has improved significantly. The valuation ratio (EV/Sales) to two-year growth is therefore very interesting for long-term investors. It currently stands at 0.39 times compared to 0.95 times in February 2021. Since 2018, each time the 0.38x level has been reached, valuations in the sector have rebounded strongly. Moreover, this 0.38x level corresponds to the level the sector was at when the US 10-year yield was 3% in 2018 (currently 2%). In our view, the market therefore seems to have already priced in the continued rise of the US 10-year.

After these sharp corrections, the bulk of the correction for high-growth companies has taken place in our view and a rebalancing is possible.

The economic and geopolitical environment will remain volatile. We will be watching the FED meeting closely this week and the official start of their rate hikes.



Completed on 15 March 2022
Rolando Grandi


[1] Source Bloomberg – Data from 16.2.2021 to 14.03.2022
[2] The fund is mainly exposed to the risk of capital loss, equity risk, currency risk and the risk of investing in small and medium capitalisation stocks. For more information on the characteristics, risks and fees of this fund, please read the regulatory documents (prospectus available in English and French and DICI in the official languages of your country) available on our website
[3] The presence of the stocks mentioned in the funds’ portfolio is not guaranteed over time.
Past results of companies or past performance of the share price are not a guide to future results or performance, which are not constant over time.
[4] The fund is mainly exposed to the risk of capital loss, equity risk and currency risk. For more information on the characteristics, risks and fees of this fund, please read the regulatory documents (prospectus available in English and French and DICI in the official languages of your country) available on our website
[5] The investment process may change over time and is not a fixed constraint in the prospectus
[6] Morgan Stanley, in the US


The opinions expressed in the document correspond to LFDE’s market expectations at the time of publication. They may change according to market conditions and LFDE cannot be held liable in any way. Investing in the financial markets involves risks, in particular the risk of loss of capital.