How do you see QE tapering playing out?
The issue of European Central Bank (ECB) QE tapering is quite an important one for European markets. It needs to happen, as the European economy strengthens and is in a much better position. You have to try and get away from the negative interest rate environment that Europe has, which is quite counter-productive and makes it difficult to price anything. The ECB has to find a way to do that without spooking people. I expect it to be a very gentle process. The ECB will continue to warn that it is coming; that they are going to ease back on the amount of buying they are doing, but within the context that there are no signs of high inflationary pressures, and that growth is still pretty fragile. I think it is going to be a very long term process, and like all these things, I expect there to be one or two occasions where the market will overreact. But the broad trend is a positive one.
Is it a good environment for quality growth European strategies?
The debate recently has been dominated by low quality value versus growth. In reality, the strategy of the fund for the past 16 years has been to focus on quality growth, and that will remain the case. Our ability to forecast the short term is pretty limited.
Is euro strength a headwind?
The strength of the euro is going to be a headwind in the very short term, but you have to bear in mind that, a year ago, the euro was trading below $1.10 against the US dollar. It is clear that European companies did very well, in terms of their exports, as their US dollar earnings translated back in the weak euro. Just reverse that and you see the weaker US dollar being translated back into the euro. It is not a huge headwind, but it is going to mean that 2018 earnings per share (EPS) for European markets will probably not be as high as people initially expected.
Where are you finding the best opportunities?
The opportunities we are finding at present are in the financial realm, which includes a number of banks in the portfolio – Italian banks, French banks and a Danish bank. We also have diversified financials; so Amundi is now a top-five position for the fund. So financials itself is a big area for us. And healthcare services is also an area we are heavily exposed to via Fresenius SE and Fresenius Medical Care.