Segments with visibility should thrive in the current volatile environment

The European equity markets had a very poor December. Indeed, the markets started falling early in the month, as hopes of a vastly increased easing programme by the European Central Bank were quickly dashed. So, despite some good news (reduction in the deposit facility rate and a six-month extension of the Asset Purchase Plan), disappointment was all the greater as markets had bet on increased monthly purchases, which ended up not being announced. In addition, euro-zone GDP growth proved subdued. Soon after the ECB meeting, the markets started taking a close look at the upcoming OPEC meeting. But the meeting outcome was clear: no production-cuts whatsoever. As a result, the oil price very quickly resumed its sharp falling trend , taking with it European stock markets and other commodities, as well as triggering renewed concerns on the mining sector in particular.

The first rate hike by the Federal Reserve in almost a decade did not prove a destabilising catalyst for the stock markets in Europe, possibly as this outcome had been very well flagged in advance by the US authorities.

• We have reduced the tracking error in our main portfolios as visibility was, and still is, questionable.
• We made selected moves. We cut our overweight in the Energy sector and increased the underweight in Capital Goods as growth is near zero and shares are expensive.
• We are still positive on Health Care, where we see a lot of upside potential.The same can be said for Consumer Staples, but in this case the upside is more present in niche companies.
• We remain positive on Luxury goods also as they are still relatively cheap and we are well diversified in companies exposed to Europe, the US and the world.
• We are confident in our positioning on consumer-related segments and are maintaining a fairly neutral stance across segments.
• We detect a lot of interest from investors in domestic companies in all sectors. Also, sectorial positioning seems to be very stretched in the market as investors are shorting commodity- and oil-related sectors.
• 2016 will probably be very volatile, with extreme market turnaround.