Groupama AM launches G Fund Opportunities Europe, a strategy combining a mix of “value” styles

Adopting a pure conviction-based stock-picking approach, the investment strategy of this fund consists in selecting stocks that are considered undervalued, with prospects for profit growth over a 2 – 3 year period. The result is a concentrated portfolio of 40 to 50 securities that the management team considers to be unjustly or temporarily undervalued.

In detail, G Fund Opportunities Europe employs several  “value” styles, providing broad management freedom to adapt to the different phases of the economic cycle, keeping a sharp lookout for asymmetry in potential relative performance. For example, the team can identify and capture potential investment opportunities using the following styles:

• “Self-help”: the valuation ratios are considered low relative to the potential growth in value of the company. The potential improvement in valuation is tied exclusively to causes and changes internal to the company.
• “Defensive value”: the valuation ratios are considered low, with quasi-stagnation of profits, but the profit margins remain stable.. Volatility is low.
• “Cyclical value” the securities are judged to be undervalued, with valuation ratios that follow the economic cycle and that can therefore benefit from recovery phases.
• “Special value situations / Low PE (Price Earnings)”: securities with a valuation that – potentially wrongly – anticipates a rapid decline of profitability..

The weighting of each type of undervalued stock in the [portfolio can be adjusted according to the phase of the economic cycle.

“The style rotation observed over the last few months is considered to trend towards increased investment in value securities. Our ambition is to understand the mechanisms of market pricing, in order to challenge the pricing over the 3-year time scale. For example, we aim to identify the precise reasons that dictate the return on invested capital of specific companies, whether these reasons are barriers to competition, brand strength, the impact of sectoral regulations or, perhaps, the company’s corporate culture,” explains Philippe Chaumel, manager of G Fund Opportunities Europe.

 

 

 

“The adaptive combination of several value styles as a function of the market environment is seen as the particular originality of the fund. This approach is a vector of asymmetry because we select stocks that we consider to have a higher potential for market rebound than their risk of decline in the event of an adverse scenario,” adds Pierre-Alexis Dumont, Head of Equity and Convertibles Investments.

 

With regard to non-financial ESG criteria (Environmental, Social and Governance), the definition of the eligible investment universe is based on exclusion factors: companies are excluded if their ESG risks could imperil their economic and financial viability, while economic sectors are excluded if they are considered incompatible with the sustainable investment strategy of the fund (coal, controversial weapons etc.). The fund is also based on a “best in universe” philosophy, meaning that we select the companies having an average score above that of the investment universe after removing the last quintile.

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