Stock selection pays off

Equity markets faced another though and volatile month, declining more than 4% in June. The month got off on the right footing on speculation on an agreement between Greece and its creditors, but negotiations remained fruitless. Towards the end of the month, uncertainty increased even further, as Prime Minister Tsipras decided to hold a referendum (more than 60% of the Greek finally voted ‘no’) regarding the required austerity measures and reforms required to receive additional financial support. Despite decent economic figures in the Eurozone, investors decided to partially take profit on their year-to-date gains. In this less directional and more volatile market, stock-picking remains the main alpha driver.

• We have decided to maintain our overweight into healthcare. The sector offers a strong visibility and is in line with our choice for companies with a bias towards high-quality growth.
• We have increased our exposure towards consumer staples. Within consumer staples we mainly prefer food companies, such as Nestlé and Unilever. We avoid beverage companies due to their large emerging markets exposure.
• In the financials segment, we have benefited from the more difficult month for real estate (due to interest rate volatility) to reinforce our positions in for instance Deutsche Wöhnen and Unibail.
• We have maintained our neutral stance on banks. We recognise the sector should outperform in an environment of economic recovery and rising interest rates, but are still aware of the sector’s underlying fundamentals (regulatory issues, valuations, etc.).
• We have maintained our negative stance on utilities, a sector still facing regulatory issues and suffering from a lack of growth that continues to underperform.