European equities portfolio manager Ollie Beckett discusses the opportunities for European smaller companies in 2020 and explains the themes that he believes will be important in the months ahead.
- As recessionary risks appear to diminish, the team have taken a slightly pro-cyclical stance and believe that European equities may begin draw more attention from investors, especially within the small cap space where they believe valuations are particularly attractive.
- Some European stocks with exposure to the UK are cheaper than UK consumer stocks – something that may prove favourable to value investors as uncertainty around Brexit fades.
- Themes running through the portfolio include the transition towards renewable energy, and education, which remains increasingly important as artificial intelligence continues to penetrate society.
Where do you see the most important opportunities and risks within European equities in 2020?
The investment opportunity within European smaller companies is the fact that as we see a de-escalation in the trade war and a recession seem less likely, I think you will see investors come back to European equities in general, and the smaller companies space more specifically. It is at the lower end of the market cap space that we see the most attractive valuations. So that is the big opportunity.
The risk would be that we see an escalation again in the trade war between the US and China, and that we see the economy move towards a recession. I think that is not very likely.
Are there key themes that are particularly relevant to your strategy?
The key differential on our strategy versus maybe many of the others is that we will remain valuation aware. We have done so in the last couple of years and we will do so as we move into 2020. We hope that the value-orientated stocks will be the correct place to be as we move away from recessionary risks.
In line with that we will also have a slightly pro-cyclical stance to our portfolio. Themes running through our portfolio are that we actually have some European stocks that have exposure to the UK, which have suffered because of Brexit, and we think that will turn around with greater clarity around Brexit – and actually these stocks are cheaper than the UK consumer stocks. Also we will have themes like energy transition towards renewable energy sources because that is not going away in Europe or the rest of the Western world. And we will continue to play themes like education which remains increasingly important as we move towards a society that is dictated by things such as artificial intelligence.
How have your experiences in 2019 shifted your approach or outlook for 2020?
2020 probably won’t change a lot from 2019, particularly in terms of our relative performance. The relative performance has been very much dictated by individual stock selection, so very much bottom-up. We don’t know yet the winners of 2020 but our job is to try to find those.