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Dexia AM sees investment opportunities in European equities

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Investors can create alpha by investing in the right companies, says Geoffroy Goenen, head of fundamental European equity at Dexia Asset Management.

 
The European equity markets are in a period of lower correlation. In a limited growth environment, some companies are winning market share thanks to their strengths but other are losing
 
Dexia AM recommends adopting a disciplined, analytical approach based on six criteria:
 
– Quality of the management and corporate governance
– Clear and sustainable competitive advantage
– Growth of the underlying market
– Cash profitability above the cost of capital
– Appropriate financial leverage
– Attractive valuation
 
In European equities, many of the top companies are global leaders in their (niche) markets.
Dexia AM sees opportunities in many specific industries such as industrial production, natural food ingredients, health, luxury and low-cost airlines:
 
– Industrial automation has grown twofold in terms of world industrial production, mainly in the BRIC countries. ABB is a leader, well positioned in Emerging countries.
 
– Natural food ingredients is a fast-growing market worldwide, in which Kerry, Christian Hansen and Givaudan are well placed.
 
– The health sector is benefiting from demography, the ageing population and lifestyles. Sanofi and Novo Nordisk are the two leaders in the development of treatments against diabetes.
 
– The luxury sector is benefiting from the wealth effect in the emerging countries and from the growing number of millionaires worldwide. Richemont is one of the best quoted companies in the jewellery and watch industries.
 
– Ryanair and Easyjet, the two leaders in Europe, are gaining market share every month and should continue to do so in the low-cost airlines sector.

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