The thirty or so German and Swiss companies we met with during the investor shows in Frankfurt and Bad Ragaz shared a confident tone for 2017, albeit one that avoided any triumphalism.
In general terms, the companies we saw are expecting a recovery in demand, probably coming in the second half of the year, but also emphasised that earnings growth will continue to be driven mainly by their own efforts in terms of products and costs.
This fairly balanced tone contrasts with the renewed optimism in financial markets in late 2016, freed from the fears of deflation. It is no doubt explained in part by the uncertainty in this early stage of the year about the scale of the geopolitical upheavals that could be seen in 2017. This is particularly true of the scale and consequences of greater isolationism in the USA, as reflected in their withdrawal from the Trans-Pacific Partnership.
Meanwhile, continued strong growth in the USA and renewed growth in Europe should strengthen the trend towards a normalisation of interest rates, which investors now seem to have taken into account. It is therefore possible that the reallocation of capital to equity markets that we saw begin to take shape at the end of last year will continue this year, encouraged, in the case of the European market, by a valuation which remains below long-term trends.
But this favourable economic and financial context for equity investors does not mean that one should let one’s guard down – particularly in the run up to major elections, notably in Europe – and we remain committed to our stock selection principles.
Rouvier Valeurs, whose net asset value reached an all-time record high on 25th January, is nearly 90% invested in listed companies, predominantly in European markets.
Its hedged version, Rouvier Évolution, began the year with equity exposure of 65% after hedging, the cost of which we seek to improve continuously.
Rouvier Europe is positioned in companies exposed to the European recovery and showing a discount to intrinsic value. It is fully invested in a portfolio consisting of 34 positions.
Rouvier Patrimoine meanwhile continues to put prudent management of its fixed income portfolio as its top priority and focuses mainly on short-dated German government bonds, which are both liquid and immune to rising interest rates. Its equity component stands at around 20%.