It’s seldom that a business trip coincides with one market-changing event, let alone three, but that’s what happened to Citywire AA-rated global equity manager Chris Hart on his latest tour of Europe. The Boston-based manager for Robeco Boston Partners tells us what it was like to witness first-hand a tumultuous few days during which time the Swiss abandoning the euro peg, the Greek elections took place and QE was announced.
I recently spent a week in Europe. The purpose of the trip was to speak with new prospects, update current clients and support the further growth of the strategy I run, the Robeco Boston Partners Global Premium Equities Fund.
The original plan came together in late 2014 when Robeco’s German office planned for me to join it at Fonds Kongress 2015 in Mannheim. In conjunction with our other Robeco offices, a week was scheduled for me to visit Zurich, Munich, Mannheim, Frankfurt and London.
When my itinerary was drawn up, the world was in a rocky place. Oil prices were beginning to fall, while geo-political events were occurring in Ukraine and in the Gulf. Little did we know that things would change drastically before this trip. Over the span of 11 days, we saw the unpegging of the Swiss franc, the announcement of QE by Mario Draghi and the Greek election results. Needless to say, such events would be big talking points on my trip.
The fund I manage does not focus on macro events. Instead, our process is bottom-up and fundamental in nature, but obviously we see and hear what is going on in the world around us and are aware on a company-by-company basis how these changes will affect the businesses in which we invest.
We had 24 meetings planned over the five-day visit, starting in Zurich, a city now more expensive than ever. The clients in Switzerland were definitely surprised to see that the fund was overweight Swiss stocks and we would consider buying more now that markets have reacted wildly to the CHF unpegging. As with all unexpected events, pockets of opportunity arise.
At the beginning of 2015, there was, more or less, parity with the US dollar and the Swiss franc, but after news of the unpegging of the Swiss franc, the appreciation of the dollar over the past months was reversed. The significant appreciation of the franc against the euro was even more noticeable. This means short-term earnings reports will not be as strong for Swiss multinationals converting profits back to the stronger franc from weaker currencies, but the upside is the potential for cheaper European and US merger and acquisition opportunities. I do not believe this will make some of the healthcare multinationals go on the mergers and acquisitions rampage. However, if there is activity, it will make it easier and more profitable for the companies and will lower their international research and development costs. As with all the stocks we hold in the Global strategy, the Swiss companies generate strong free cashflow, have strong management structures and exhibit a high quality bias.
The next stop for my trip was Germany, which has been a strong source of flows for the strategy. The fund recently hit the one billion mark (in USD) and a good amount of these assets have been garnered in Germany. The talk of the visits here was definitely centered upon the European Central Bank and its one trillion euro QE plans. In reality, these actions will have little effect unless they are backed by fundamental structural change in many over-regulated economies.
I have been in meetings with CFOs of European financial institutions in which they say Draghi’s QE will not change their current activities. There is simply not the supply of fixed income vehicles available to accomplish much of the European Central Bank’s goals. Given their leading position in Europe, the Germans seemed especially concerned that many countries will need Germany’s help to dig them out of their current economic situations.
There were very few discussions during the trip in direct relation to the election events in Greece. I did tell the several individuals who asked that I think it is unlikely we will find investment opportunities in the country. Too many companies are very weak fundamentally and obviously have poor momentum. It is important to us that we fill the portfolio with stocks that exhibit a valuation edge, strong business fundamentals and improving momentum, and most names we see in Greece do not fit two of these characteristics.
As with every trip I take, whether it is to attend a conference, visit companies or speak with clients, the headlines affect the topic of conversation. My responsibility is to ensure the news of the day does not unduly affect the portfolio.
This article originally appeared in the March issue of Citywire Americas