French boutique DNCA Investments, part of Natixis Global Asset Management, has started the distribution of two of its flagship European equity funds in the UK : DNCA Invest Europe Growth and DNCA Invest Value Europe.
DNCA Invest Europe Growth is managed by Carl Auffret while Isaac Chebar manages the DNCA Invest Value Europe strategy.
Both strategies aim to outperform the Stoxx EUROPE 600 Net Return.
The boutique will use the distribution networks of Natixis GAM for their distribution in the UK.
Eric Franc (pictured), CEO of DNCA, said the company is targeting the UK wholesale market in a press briefing on 15 March in London.
He explained the UK is a competitive space with strong domestic market and that it will probably going to take a long time for DNCA to make its mark there.
DNCA’s CEO remains confident regarding the distribution of the funds in the UK and said the company will evolve step by step.
“If you are good in the UK, you can be good everywhere,” Franc said.
DNCA has faced a strong growth in assets under management in the last three years to €19.6bn from €5bn.
The company has started to distribute its funds through Natixis distribution networks in Spain, Switzerland and Germany in the aftermath of its acquisition by Natixis GAM in 2015 (Natixis GAM is to fully own DNCA by 2020).
Franc said the company has had a successful start in Spain with inflows amounting to €500m since July 2015.
Also he unveiled plans to further distribute DNCA’s funds in Canada.
Franc said demand is strong in Canada for European equities and that the Canadian market would be easier to enter than the US market.
Over the coming months, DNCA has plans to launch two new equity strategies : one focusing on Northern Europe equities that would be managed by Carl Auffret and another one focusing on European small and mid caps that will be managed by Don Fitzgerald, appointed last September as fund manager in the DNCA’s European value team.
Auffret gave insights on the European equities’ universe and his view on Brexit.
The fund manager said the economic momentum is favourable in the eurozone even though the 1.7% growth foreseen for the area by the IMF for January 2016 is “not enough”.
“The eurozone is going into the right direction,”Auffret assessed, adding that the oil issue was good news for Europe and India.
Regarding European equities, Auffret explained large caps are too expensive and that he does not want to overpay a stock for the achievement of its growth. He said less well-known companies are currently drawing the underlying growth of the fund, achieving an average growth rate between 7 and 9%.
Some of them can be found in the healthcare sector in which the DNCA Invest Europe Growth currently keeps a strong bias.
In that area, Auffret sees defensive growth stories at affordable prices.
He notably focused on the immunotherapy sector where new products are to extend the life of patients suffering from some cancer diseases in comparison with traditional chemotherapies.
If he noted main pharma companies in this market are American for now, European companies such as Sartorius Stedim Biotech and Lonza could take part to “the immunotherapy revolution”.
Another stock picked in the fund is these of Ryanair.
Auffret compared the aviation sector to a commodity market, where only cost leaders are performing. He highlighted Ryanair lowest cost per passenger (excluding fuel) in Europe amounting to €29 compared to those of Easyjet (€52) and Air Berlin (€107).
He believes Ryanair and Easyjet’s market shares in continental Europe are to grow to 50% from 20% today.
The Brexit issue
Auffret does not believe in a Brexit he described as a “bloody nightmare”. However, he does not exclude it could occur.
He said the decline of the sterling appears a foretaste of what will happen in the event of a Brexit.
“We would enter an uncharted territory but a Brexit would obviously lead to a lose-lose situation on the economic as well as on the political side for the UK. The currency will be hit even harder,”
Auffret highlighted “UK’s twin deficit” (public and account deficits).
“The UK is not Switzerland nor Norway. Nobody payed attention until now because the UK has recorded a very strong growth. But if a Brexit happens, that growth is to be hit by perhaps 2 or 3% and managers would then refocus on the British twin deficit,” he said, speaking of a “self amputation”.
As for the UK equities in the fund, Auffret keeps a “wait and see” stance, assessing the Brexit poll remains a bit far. He told InvestmentEurope the fund’s exposure to UK equities will depend of the evolution of the sterling curve and of the valuations of UK domestic companies.
Nevertheless, Auffret sees some British winners making profit of the sterling’s drop such as BAT and Spirax.
The DNCA Invest Europe Growth strategy has €415.3m of assets under management as of 29 February 2016. It is understood the fund will be closed if its AUM reach €1bn.
As at 29 February 2016, the top 10 positions of the fund, representing almost half of the portfolio, were Teleperformance (France), Sartorius Stedim (France), Lonza (Switzerland), Fresenius (Germany), Korian (France), Ingenico (France), Babcock (UK), Autoliv (Sweden), Ryanair (Switzerland) and Valeo (France).