EU referendum in the UK weighing on the European equity markets

Despite the swinging fluctuations, the equity markets still closed the month on a positive note. The European markets found the going tough in early April. The effects of a weak dollar, which made European goods more expensive to sell abroad, weighed upon sentiment. Uncertainty was also fuelled by rumours about difficulties in the Italian banking sector.

However, sentiment improved in the second fortnight of the month. The markets also benefited from the on-going recovery of the commodity-related sectors and improved China economic figures. In this context, commodity-related sectors Energy and Materials continued to outperform the broader markets. Technology and Utilities lagged strongly.

• Stock-picking remains the most important alpha driver, confirming the need for a high-conviction and concentrated equity portfolio.
• We posted an excellent performance in April and took some profits at very attractive levels on Mining and Energy names. We have a neutral stance on these sectors, as the market has already priced in an oil price of around 50 USD/barrel.
• We also took some profits on Materials names like Johnson Matthey, after a nice performance.
• Although last month’s relative performance was more difficult for Consumer Discretionary, we believe we can find opportunities in this sector, which is driven not only by the market sentiment surrounding China.
• Within Consumer Discretionary, we favour several individual names in the Automobiles (BMW) and Luxury Goods sectors (Richemont).
• The Health Care sector saw some excellent earnings results (Shire) in a difficult context.
• We have suffered from our underweighting of Utilities, but this was offset by the underperformance of Telecoms, which we do not hold.
• We maintain an underweight in Industrials. The sector is expensive, with almost no growth perspectives.
• We still have an underweight in Telecom. The sector lacks pricing power and shows no growth perspectives.
• Our stakes in Real Estate delivered excellent results and we benefited from our underweighting of Insurance. We took some profits in the Asset Management segment, where we see less upside. We remain slightly overweight in Retail Banking, where results differ greatly from region to region and bank to bank.
• European markets have been paralysed by the coming “Brexit” referendum in the United Kingdom on 23 June. Liquidity remains low and the earnings season was quite positive.
• Inflow should return once the results on the referendum are known. In the case of a “Brexit”, the markets will fall and this will constitute an important buying opportunity. On the contrary, if the “Remain” vote wins, markets will definitely go up.