November was a good month for performance. After a resurgence in the performance of ‘value’ (versus ‘growth’) since early September, November saw the return of growthier stocks outperforming their cheaper-rated peers. It is pleasing to us that we have managed to outperform in November and in the previous couple of months, showing our relatively balanced style positioning. Positive contributors during the month included DSM, Vestas and Partners Group.
During the month, we initiated a position in the German utility company RWE and we sold our position in Orange. With RWE, we are attracted by the company’s growing exposure to the renewables sector which should benefit from excellent medium/long term fundamentals. RWE also has legacy exposure to lignite/coal which brings some risks, but we see these risks as outweighed by the attractions of the shift in the business model away from these areas. With Orange, we have long-held a position on the view that French market consolidation was likely to happen and that this would result in a more inflationary revenue environment. We have become frustrated by the lack of any progress on the M&A front and by consistently weak operational performance and so have sold the position.
We are confident in our positioning and will continue to retain balance in our exposures by considering two types of business for investment; those where we see high and sustainable returns that are undervalued by the market and those companies where we can see a material improvement in medium term business prospects.