Michael Clements, Head of European Equities Portfolio Manager OYSTER European Selection & OYSTER European Opportunities Syz Asset Management (Europe) Limited
Nervousness amongst investors is running high. After starting the summer with a sigh of relief because there seemed to be some respite from ongoing saga surround Greece, suddenly it appears that China has caught a cold and the rest of the world is feeling poorly as well. Coupled with a steady fall in the oil price and it clear why everyone is focused on Chinese macroeconomic data rather than US interest rate hikes. As a result, European equities have given up much of the gains it enjoyed in the first half of the year.
Investors are now wondering whether now is a good entry point or the start of something more serious. As head of European Equity team and lead manager of the Oyster European Opportunities Fund, I ought to have the answer to this important question but unfortunately I don't. For what its worth, my opinion is that the long term outlook for Europe remains as attractive as it was a few months ago and I believe that over the next few years this will underpin a positive market. Right now, as bottom-up stock-pickers, we are spending our time focusing on how to advantage of the current market volatility rather than trying to predict the direction of the market.
The Oyster European Opportunities fund is generally underweight the Chinese market with only about 5% of the portfolios revenue derived directly from that part of the world. Of course, we have indirect exposure to China, or more broadly to Emerging Markets notably through our substantial holdings in Aberdeen Asset Management and Swatch Group and naturally those stocks are falling as fears about emerging markets rise. However, we see the current nervousness more of an opportunity to put in place the drivers for long term returns than a threat to short term performance.
So how do we intend to take advantage? Firstly, we remain long term investors which allows us to look through the short term fear in the market. Secondly, our detailed stock level analysis gives us the confidence to continue to add to fundamentally well managed companies with strong competitive advantages such as Swatch Group and Aberdeen Asset Management which are now trading on very attractive valuations. Thirdly, we are hunting for new ideas in Energy sector and in Emerging Market plays, two areas which we see a lot of short term noise but also long term value.
I am not sure which way the market will go in the short term but I am confident that our process will continue to generate good long term returns for our clients.
