October 2020

October brought a continuation of the falls in equity indices seen in September (the global MSCI World net return index was down 2.4% and the European EuroStoxx 600 net return by 5.1%), as a result of the growing number of new Covid infections – particularly in Europe – and the increasing lockdown measures introduced by European governments.

These health restrictions have counteracted the strong economic recovery seen over the summer (eurozone GDP grew by 12.7% in the third quarter). In response, the International Monetary Fund downgraded its forecasts of global growth to -4.4% in 2020 and +5.2% in 2021. However, as we discussed last month, news from China (where manufacturing output reached its highest level for 10 years in October) and the USA (where consumption has returned to pre-pandemic levels) has helped moderate concerns felt in recent weeks in Europe.

The compartments of our SICAV suffered in October from the deterioration of expectations for the European economy, most notably for the final quarter of this year. The net asset values of Clartan Valeurs and Clartan Europe fell by around 7%. This very disappointing performance is explained by their strongly European structure and by the ‘value’ bias of a part of our positions (30%), that is to say stocks valued well below their fundamentals, which will return to market favour – when the time comes – in line with our analysis. Within this ‘value’ allocation we would highlight companies such as BNP Paribas and Elis, whose latest figures support our valuations and warrant the ‘quality’ label we have given them. Thus, BNP’s solid numbers bucked the trend of market forecasts by exceeding all expectations, and thus invalidated the current unjustifiable valuation: 37% of shareholders’ equity (€111 billion) with net profit of over €6 billion expected in 2020. Elis, an industrial laundry company, also published better than expected figures, demonstrating its ability to adapt and generate cash in difficult conditions. The shares gained 14% on the day of publication, forcing analysts to upgrade their estimates. For these reasons, we believe that the portfolios in the compartments of our SICAV offer significant upside potential relative to the structural values of each of the investments held.

Alongside this ‘value’ allocation, the foundation of our portfolios consists of more than 50% of high-quality companies with low market volatility because they offer greater growth or resilience. Such stocks will make gains initially as a function of their earnings growth. This is the case for Swiss pharmaceuticals giant Roche – a quality stock if ever there was – which has just confirmed its guidance for an increase in revenues and earnings in 2020 (at constant exchange rates) and plans to increase its dividend. This is also true for Sanofi, which will see earnings grow in 2020, by between 7% and 8% at constant exchange rates.

Lastly, Clartan Ethos ESG Europe Small & Mid Cap, which has been open for subscriptions since 21st September, now has more than EUR10 million under management. Invested at 94% in European equities taking account of ESG criteria, the portfolio is focused on small and mid-sized capitalisations (67% between EUR1 billion and EUR10 billion). Find more details about the fund on our website.


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