Tag: European Market

Rosenberg Equities, the quantitative unit of AXA Investment Managers, manages this strategy and has a long history of systematic and factor-based investing. CIO Gideon Smith leads this strategy and is supported by large securities and ESG research teams, internally and from the wider AXA IM stable. The team undertakes consistent research with slow incremental improvements, rather than the frequent tinkering of typical quantitative strategies. We think this line-up is well-resourced for the approach taken. Incoming CEO Paul Flavier has added some structure with Rosenberg as the broader AXA IM group continues to reshape itself with numerous reshuffles, both in personnel and operationally, over the past few years including its ESG operation. At this stage, it appears these changes have not seeped into Rosenberg which does not appear to have incurred any negative impacts.

We are comforted by the depth and well-documented process at Rosenberg but are watchful of the impact of the parent and its requirements of its subsidiaries. Using the MSCI World Index, this fund ranks each stock based on low volatility and quality factors. The shop seeks diversity by reducing mega-cap exposure using a proprietary weighting mechanism to give a slightly higher small- and mid-cap bias. Rosenberg also applies a machine learning tail risk filter to avoid negative surprises. Finally, although not an afterthought, an ESG component is applied which excludes certain industries entirely and then over- or underweights the remaining 300-600 stocks based on their qualitative ESG scores.

Performance asymmetry has been strong since the inception of the strategy in 2013 with index beating returns coupled with an attractive 80% downside capture ratio, which has become even lower during recent stressed periods. The rally of low-quality, high-volatility stocks in late 2020 was hurtful but Rosenberg’s approach over the long term offers a simple yet effective systematic approach to global equities with significant ESG considerations.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

× We also believe the market has discounted the stock for higher investment needed in industry disruptive technologies, including mobility services, autonomy, and powertrain electrification, which our fair value already takes into consideration.

× During the past 10 years, Daimler’s EBIT margin has had a high, low, and median of 8.8% (2016), negative 2.9% (2009), and 6.9%. We model Stage I peak EBIT margin at 7.0%, which represents a 180-basis-point contraction from the 10-year high.

× Our margin assumptions decline in the last two years of our Stage I to our normalized sustainable midcycle assumption of 5.9% in year five. Our midcycle assumption represents a 100-basis-point contraction versus Daimler’s 10-year 6.9% historical median.

× Despite our assumptions for significant margin pressure, our DCF model still generates a EUR 85 fair value estimate that represents 63% upside to the EUR 52 consensus price target and 74% upside potential versus the current market valuation.

For over 100 years, Daimler shares have been the investment in the inventors of the automobile. Based on the expected market development and the current assessments of the divisions, Daimler continues to anticipate Group unit sales, revenues and EBIT in 2021 to be significantly above the prior year’s level. The current worldwide supply shortage in certain semiconductor components affected deliveries in the first quarter. Daimler anticipates that this shortage could further impact sales in the second quarter. Although visibility is limited at present, Daimler assumes some recovery in the third and fourth quarter.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

× Management forecasts long-term average annualized revenue growth of 7% and long-term EBIT margin to reach a range of 9% to 11% (five-year plan target to 2022) on the expansion of Jeep, Ram, Alfa Romeo, and Maserati brands. The company’s 2019 forecast includes EBIT of greater than EUR 6.7 billion for a margin of greater than 6.1%. 2019 revenue guidance was not specified, but the EBIT forecast implies at least flat year-over-year revenue.

× Contrast our Stage I forecast and midcycle assumption with management’s five-year plan targets and a 10-year historical annual revenue growth rate of 6% plus adjusted EBIT margin high, low, and median of 6.4%, 2.5%, and 4.3%, respectively.

× Even so, for our model to generate a fair value equivalent to the sell-side consensus and the current market valuation, investors would have to believe midcycle assumptions of 2.5% and 2.1%, below Fiat Chrysler’s 10-year historical range and demonstrating incredulity toward management’s five-year plan targets.

× Including assumptions that are well below management’s five-year plan, our model generates a fair value that represents 99% and 131% upside to the sell-side consensus price target and the current market valuation.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

× We think the market has priced BMW as though industry-disruptive technology spending will permanently leave margins at cycle lows, a view we do not share owing to the company’s narrow-moat driven by premium brands across the entire product portfolio.

× Our Stage I base case assumes 1% annualized industrial revenue growth versus 6% 10-year historical and average industrial EBIT margin of 6.4% versus the 10-year high, low, and median of 11.6% (2011), negative 0.5% (2009), and 9.0%. We assume a normalized sustainable midcycle of 7.5%.

× The company continues to guide to a long-term 8% to 10% industrial EBIT margin range with 6% to 8% for 2019, excluding a charge for the European Commission’s finding that German automakers colluded on diesel equipment (4.5% to 6.5% including the charge).

× To force our model to generate a fair value equal to the sell-side consensus and the current market valuation, we would have to believe normalized sustainable midcycle margins of 2.1% and 1.5%, respectively.

× Despite the headwinds already baked into our model, our fair value represents upside potential to the sell-side consensus price target and current market valuation of 63% and 76%, respectively.

Bayerische Motoren Werke AG, together with its subsidiaries, develops, manufactures, and sells automobiles and motorcycles, and spare parts and accessories worldwide. It operates through Automotive, Motorcycles, and Financial Services segments. The Automotive segment develops, manufactures, assembles, and sells automobiles and off-road vehicles under the BMW, MINI, and Rolls-Royce brands; and spare parts and accessories, as well as offers mobility services. This segment sells its products through independent and authorized dealerships. The Motorcycles segment develops, manufactures, assembles, and sells motorcycles under the BMW Motorrad brand, as well as spare parts and accessories.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

× Index funds continue to increase their market share at the expense of actively managed funds because of higher inflows (size adjusted).

× Global large-cap blend, US large-cap value, ecology, and financial equity funds saw the highest inflows on a Morningstar Category level in March.

× Corporate bond and US growth equity funds were highly unloved, as were multistrategy products.

× BlackRock topped the list of the asset-gatherers by branding name in the active spectrum; Xtrackers in the passive world.

× Allianz Income and Growth benefited the most among Europe’s largest open-end funds from the demand for risky assets. Conversely, the largest trackers of the S&P 500, IShares Core S&P 500 and Vanguard S&P 500 ETF, continued to bleed.

Long-term fund investors in Europe increasingly fell into line with the dominant global market trend in March as the reflation trade kicked in. This was reflected by a virtual standstill in the net sale data for bond funds, which only took in net EUR 1.2 billion, thus making last March the weakest month in 12 months. This reflects the heavy losses multiple bond segments have suffered over the past months as yields for government bonds rose sharply in the first quarter. The rising optimism of investors for the prospects of a post-coronavirus economy is also reflected in the high inflows of 47.3 EUR billion sent to equity funds. Cyclical sectors and value categories benefited the most from this trend. Conversely, precious-metals funds suffered a rout in March, shedding EUR 1.9 billion, another indication that gold has lost its allure in the current market environment. These outflows were only partly offset by inflows to broad basket and industrial commodity funds, and thus net sales for commodity funds were pushed into negative terrain in March.

Allocation funds enjoyed the highest one-month inflows since February 2018, while alternative funds returned to the red zone, suffering outflows of EUR 400 million after a two-month positive-flow intermezzo. In all, long-term funds garnered healthy inflows of EUR 60.2 billion. Money market funds saw modest outflows of EUR 430 million. Assets in long-term funds domiciled in Europe rose to EUR 10,952 billion from EUR 10,608 billion as of Feb. 28, 2021. This marked a new historic record for Europe’s fund industry.

Active Versus Passive

Long-term index funds posted inflows of EUR 16.9 billion in March versus EUR 43.3 billion that targeted actively managed funds. (The table below only includes data for the main broad category groups.) On the active side, equity funds enjoyed the highest demand, pulling in EUR 29.5 billion, while demand for actively managed fixed-income funds trickled down to EUR 493 million. Equity index funds enjoyed inflows of EUR 17.8 billion, and bond index funds drew in close to EUR 800 million. The market of long-term index funds rose to 20.9% as of March 2021 from 19.5% as of March 31, 2020. When including money market funds, which are the domain of active managers, the market share of index funds stood at 18.5%, up from 16.9% as of March 31, 2020.

Fund Categories: The Leaders

A look at the top-selling long-term fund categories reveals the continued strong demand for global equities. Global large-cap blend equity funds enjoyed an outstanding EUR 11.9 billion of net inflows last month, marking its 10th consecutive month of positive inflows. Passive and active funds shared the spoils, even though the two top sellers within the category were two index funds: HSBC Developed World Sustainable Equity Index Fund and BlackRock ACS World ESG Equity Tracker Fund, with almost EUR 2.0 billion and EUR 1.7 billion, respectively (both are distributed in the United Kingdom only).

US large-cap value equity funds took in EUR 4.8 billion in March, making its best month with regard to flows on record. This arguably indicates that value investors, after a decade in the wilderness, anticipate the so-called “great rotation”: a major turn in the investment cycle from growth to value stocks. The iShares Edge MSCI USA Value Factor UCITS ETF was the most sought-after product of the category, with EUR 1.5 billion attracted.

The equity sector ecology category continued to benefit from the huge demand for environmental, social, and governance and climate-focused funds, garnering inflows of EUR 4.0 billion. ACS Climate Transition World Equity Fund was the fund with the highest demand, with net inflows of EUR 524 million each.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.