9 JAN, 2024
By Adrien Bommelaer and Paul Merle, fund managers at La Financière de l’Echiquier (LFDE)
The Echiquier Major SRI Growth Europe fund outperformed its benchmark in 2023. Although in a market environment more favorable to its profile, the fund benefited from a positive sectoral allocation, its success was primarily attributed to a well-executed selection of stocks. This is evident in the notable gains achieved by Novo Nordisk, Accenture, and Inditex.
Looking ahead to the coming months, we anticipate a moderate slowdown in the global economy. Inflation continues to decline, which should lead to a reduction in interest rates, although they will remain at higher levels than before the pandemic crisis. Therefore, we maintain a defensive profile with a high exposure to sectors with resilient growth, such as healthcare, basic consumption, and luxury, which are poised to withstand a contraction in the economic cycle. We also prioritize companies with low leverage and the ability to generate liquidity in a context of elevated interest rates.
In this regard, we sold stocks that did not sufficiently meet these criteria, such as Cellnex or Lonza, to strengthen positions in more resilient profiles, such as Ferrari, Wolters Kluwer, or Inditex. Given the visible decline in interest rates, towards the end of 2023, we also reduced our positions in financial sector stocks to reinforce holdings in more cyclical titles, such as Assa Abloy, Infineon, or ASML.
We initiated a position in Epiroc, a company specializing in the supply of equipment and services to the mining industry. This Swedish group has an excellent quality profile, high cash generation, as well as robust and high margins, with over two-thirds of its revenue coming from services and spare parts. The group is increasing its market share through innovation, focusing on reducing the adverse effects of mining activities on CO2 emissions, water consumption, and hazards through electrification, digitization, and automation of its equipment. It should benefit from the growth in investment in the mining sector driven by the need for heavy metals essential for the energy transition.
In 2024, we will continue to deploy our high conviction strategy through a concentrated portfolio that, at the end of December, comprised about thirty stocks. Our rigorous selection process continues to prioritize high-quality growth companies, leaders in their sectors, with a high pricing power, and effectively managing their environmental, social, and corporate governance risks.