Focus on Echiquier Major SRI Growth Europe
Option Finance, 12/11/2019
Echiquier Major SRI Growth Europe, created in 2005*, picks European companies that stand out for ESG excellence in their sector and looks for three performance drivers: growth, quality and SRI. The strategy has proved especially fruitful this year…
The Fund[1] invests in growth stocks driven by long-term trends, such as healthcare, the ageing population, the energy transition or digitisation. It prioritises high quality stocks, judged by their leadership and innovation ability. “We love good growth models, companies who can forge their own destiny irrespective of what the economic cycle is doing. We seek out leading players in their markets, with high and resilient margins, pricing power and the substantial cash flow to fund a virtuous circle of innovation.” says Matthieu Détroyat, portfolio manager.
Echiquier Major SRI Growth Europe has the French state SRI label and embodies La Financière de l’Échiquier’s SRI convictions, which prioritise long-term value creation and high-quality governance. The SRI & Performance by LFDE investigation of 500 companies showed that factoring in ESG criteria was a driver of long-term performance: over 9 years, the top ESG-rated firms outperformed the least well rated by 2.5 times.
The fund management team, comprising three portfolio managers and an analyst, applies a disciplined investment process to pick European leaders with market cap over EUR 5 billion and annual revenue growth above 5%. The process also deeply embeds Environmental, Social and Governance (ESG) criteria. Since the start of the year, Echiquier Major SRI Growth Europe has posted a performance[2] of +31.2%*, with half the portfolio stocks up more than 30%, against +19.7% for its benchmark, the MSCI Europe NR.
* Institutional share created in 2012
* Data at 23/10/2019, Institutional share
Questions to… Matthieu Détroyat, portfolio manager
How deeply is SRI embedded in the Fund’s management?
SRI feeds into our investment process from stock-picking to portfolio weightings. After running our sector – tobacco, arms, fossil fuels – and regulatory exclusion screens, we select stocks based on the quality of their ESG profile. Our ESG analysis methodology scores companies out of 10, with Governance counting for 60% of the rating. We find that companies with high-quality governance tend to instil positive social and environmental policies. Firms need to achieve a minimal score to be eligible for the fund. We systematically meet management teams, raise non-financial issues and subsequently communicate on areas of improvement which are followed up over time. We vote at portfolio companies’ AGMs. SRI is seen as a source of performance and opportunities but also as a powerful risk-management tool. In tandem with classic fundamental analysis, it allows us to construct a concentrated portfolio with a low rotation rate. With a carbon footprint of 72 tonnes CO2 equivalent per million euros invested[3] compared to 280 for its benchmark, Echiquier Major SRI Growth Europe is one of the ten-least carbon-intensive equity funds in Europe[4].
Which sectors do you favour?
Visible growth currently makes up two thirds of the portfolio and is the backbone of the fund. Healthcare is well represented through stocks[5] such as AstraZeneca, with its cancer therapy, and Straumann, global leader in dental implants. Technology is also at the heart of the portfolio via stocks like SAP, with its ERP software, and ASML, which makes semi-conductor machines. Services are another big area. RELX, for instance, is market leader in professional data with the top ESG score in the portfolio.
The Fund has a clear growth bias. How well do you think this investment style will do over coming months?
Besides our positioning in visible growth, the factor that outperforms over the long term is quality. Companies able to generate high margins throughout the economic cycle and with good visibility can continue to perform during phases of economic slowdown. The growth/quality combination is positioned for growth during the global economic slowdown and with rates set to remain low. It should perform for some time to come.