Flash Avenir Euro – Avenir Europe | 2020
If you ask Google what were the most used words in 2020, it would probably tell you: Covid-19, Coronavirus, vaccine, lockdown, shutdown, social distancing, quarantine... Indeed, the year 2020 will clearly be remembered by the escalating fears regarding the spread of the Covid-19 and the consequences this has brought on our daily lives. When it comes to the financial markets, the least we can say is that 2020 was an "interesting" year.
Over the first quarter, the coronavirus pandemic, after starting in China, developed outside Asia, leading many countries to confine their populations and damaging many economic sectors. This has caused a strong market downturn over February and March. The market rebound was thereafter triggered by the progressive reopening of economies and the partial rebound in the economic activity. Towards the last quarter, financial markets were mainly led by the vaccine news and their promising results.
If we look at funds’ behavior throughout the year, we can distinguish 3 different periods (see graphs below):
- The first period would be the first quarter, from January till end of March 2020
- The second period goes from end of March till end of October 2020
- The third period started end of October till end of December 2020
Title: YTD performance of Groupama Avenir Euro (share class M) vs benchmark as of Dec. 31st2020
Title: performances of Groupama Avenir Euro (share class M) vs benchmark as of December 31st 2020
Title: YTD performance of G Fund – Avenir Europe (share class I) vs benchmark as of Dec 31st 2020
Title: performances of G Fund – Avenir Europe (share class I) vs benchmark as of December 31st 2020
The first period, from January till end of March, was marked by the global spread of the Covid-19 virus and the general and worldwide lockdown of populations and economies. This drastic stop in the economic activity had a major impact on many countries and sectors, leading to a worldwide economic crisis.
Besides the strong volatility seen on the markets, our stock selection showed strong resilience during the market turnaround in February and March, outperforming its reference index, and the companies we hold in the funds continued to show very attractive growth outlooks, proving once again the quality of their positioning in terms of market and products.
While the health crisis has placed a stronger than ever emphasis on the importance of healthcare systems and accelerated the digital transition of economies and companies, the funds clearly benefited from the strong performance of several stocks in the field of medical technology and digital innovation, two major focuses of our stock selection. This allowed them to show clear resilience during this bear phase.
As such, over this first period, several stocks in the field of medical technology stood out, with once again a very strong performance of Sartorius Stedim, and its parent company Sartorius, (production equipment for biotechnology) driven by a very strong operational dynamic combining strong organic growth and improved margins, with a very significant share of recurring revenues due to its single-use production technology. This stock is present in both of our funds. Still in the field of medical technology, we can note the strong performance of Ambu (single use endoscopes), present in G Fund – Avenir Europe, one of the portfolio’s strongest positive performance. Over the first quarter, the company received a large number of positive recommendations from medical authorities (Spain, Italy, UK, US and France in particular) for the use of single-use bronchial endoscopes, a product on which they are first mover and market leader. Their endoscopes were also used during the Chinese pandemic.
In the field of digital innovation, we note Ubisoft’s good performance (video games), present in both funds, benefiting from the first quarter lockdown measures. In the same sector, we note the good performance of Keywords Studio (outsourced services for the video game sector), present only in our G Fund – Avenir Europe fund, after a Capital Market Day where the group once again demonstrated the soundness of its growth strategy, combining organic growth and acquisitions to strengthen its offer of outsourced services for a video game industry in strong demand for content and quality.
However, not all of our values have been so resilient. Due to the containment measures, the end of tourism and the consequent inability to consume, eat out, etc., several of these companies such as Rational (automated ovens for hotels, school canteens, caterers), Sixt (high-end car rental) and Technogym (sports equipment for gyms and hotels), present in both of our funds, have suffered real losses in turnover with client sectors weakened. The impact was strong in terms of activity, but these are all family-owned companies, in good financial health and should be able to recover their strong growth dynamics in the medium-term.
The second period, from end of March till end of October, was driven by the progressive reopening of economies and a partial rebound in the economic activity, leading equity markets towards a strong recovery. Over this period, our funds showed strong performance, outperforming once again their reference indexes.
We can distinguish two phases over this second period when it comes to our funds behavior:
- The first phase, from end of March till July where the performance was once again driven by our stocks in the medical technology field such as Sartorius Stedim and digital innovation
- The second phase, from July till end of October, over which we saw a rebound in our stocks that had suffered over the first quarter
As such, we can note the strong performance of Teleperformance (outsourced customer experience and value-added service provider and present in both of our funds), following the publication of impressive positive organic growth of +5% in revenues in Q2 despite the pandemic context. The company has managed to ensure full continuity of its service thanks to the migration to home office of a major part of its staff, which not all its competitors were able to achieve. The group benefited in particular from strong demand in the areas of e-commerce, online games and online food delivery services. These results once again highlight the soundness of their growth strategy combining geographical deployment, development of new high value-added services through acquisitions and technological know-how.
At the heart of the digital innovation needs throughout the value chain of the construction sector, we note the performance of Nemetschek (software editor for architecture and construction, 3D design – present in both of our funds). The company has demonstrated the accuracy of its positioning with excellent quarterly and half-yearly results, thanks in particular to the performance of its software for the construction sector (continuation of construction sites, particularly in Germany) and a growth target maintained over the year. The structural investment needs of the architecture, building engineering, construction and asset management sectors are still strong, with Nemetschek being very well positioned to answer all of those needs with its portfolio of 16 dedicated software products.
While the lockdown of populations has seen a clear acceleration of “e-commerce” with, in particular, an increase in online distribution and home food delivery, we can also note a good performance of many players in the logistics value chain for which demand has shown strong resistance during this health crisis. Taking advantage of this strong resilience in demand for logistics automation, we note the sustained performance of Interroll (conveyor systems, sorting and dynamic warehousing – present in both of our funds), whose equipment is used by all the major players in online commerce.
Finally, the last period, from end of October till end of December 2020 was marked by positive news regarding the Covid-19 vaccine and its efficiency. This has given investors some transparency and visibility when it comes to the upcoming months and a potential “back to normality”, leading to a strong market rotation of unprecedented magnitude in an extremely short period of time. The market went from ” COVID friendly stocks ” (those that had benefitted up until now from the lockdown measures and global sanitary situation) to values that were highly affected by containment measures. As such, this rotation benefited several specific sectors and value stocks, while growth stocks lagged as a whole. The hope of a vaccine and a clearance in terms of ” back to normality ” lifted the ” physical economy ” sectors with strong operational leverage whose activity will eventually recover upward as soon as we come back to normality. On the other hand, sectors that benefitted from the sanitary momentum fell.
Over this period, our funds gave back part of their outperformance given our structural positioning of quality and growth stocks. Many of our stocks that had suffered over the first 10 months strongly rebounded, such as Rational (automated ovens for hotels, school canteens, caterers), Sixt (high-end car rental) and Technogym (sports equipment for gyms and hotels). On the other hand, our best performers, mainly stocks operating in the medical technology field such as Sartorius Stedim, and digital innovation, gave back part of their strong YTD performance. Nevertheless, these companies still remain among our best contributors if we look at the whole year of 2020, despite the decrease over the last quarter.
We are convinced that this crisis will clearly be an accelerator of structural trends and will furthermore emphasize and favor quality companies. The great structural market dynamics are there and the companies participating in these developments continue to take advantage of them or will do so again to the full (needs in medical innovation, digital innovation, e-commerce and automated logistics, industry 4.0.), once the crisis is completely over. The increasing automation needs of factories and logistics chains and the structural needs of digital and medical innovation are still very strong and accelerating with the crisis, and we believe that our companies are very well positioning in order to capture these trends over the long-term.
As a consequence, despite the recent rotation observed on the markets, we are convinced of the quality of the companies we hold in the portfolio and their ability to maintain and/or regain their strong operational growth dynamics. In the medium term, the market will remain very selective and we must continue to favor the “best players”. We are very convinced in our process and ability to select the leaders of tomorrow. More than ever, we believe our stocks should continue to show strong growth outlooks and gain market shares, thereby strengthening their competitive advantage. As a result, the positioning of our strategy remains valid in the medium term according to us.
Main risks of Groupama Avenir Euro et G Fund Avenir Europe are:
Equity risk: A variation in equity quotation could positively or negatively affect the fund’s net asset value;
Capital risk: It exists the possibility that the invested capital could not be totally returned;
Small/mid cap market risk: On the mid cap markets, volume of traded securities is reduced, market movements are more pronounced downward wise, and faster than in the case of large caps;
Liquidity risk: Due to the exposure to small and mid capitalisation stocks, which could present a limited level of floating capital.
By Nina MAJSTOROVIC, Product Specialist at Groupama Asset Management.
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