As we continue to navigate the Covid-19 crisis, GAM’s fund managers tell their investment stories.
Niall Gallagher, Investment Director at GAM, shares his views.Returning to Growth
We see plenty of companies exposed to some of the really key structural trends that we observe.Niall Gallagher
What are the current opportunities in European equities?
A lot has changed over the last nine months. There are a number of longer-term secular trends that we have been following for quite some time; many of these trends have been accelerated by what has happened this year and we think they will continue to accelerate. One of the things that has changed in the landscape has been the shift in spending from the offline world to the online world. We think that will carry on. We have also seen Asia cope much better with this crisis than many countries in Europe or the US; the whole shift in global consumption towards the Asia middle class has also been accelerated. The whole working from home thing has really emphasised the importance of digital change, which again we think has been accelerated by what has happened. There have been changes in use of digital payments over cash – most people now prefer to use a card or their phone rather than handling cash. There has also been the decarbonisation agenda, which you may have seen referred to as “build back better”. It does appear that in the fiscal policy responses of governments there is a desire to increase spending on green, decarbonisation initiatives. These are all things that we had believed were quite powerful for some time but they have now been stepped up by the events of the last night months.
How important a role does the UK play and is Brexit still a consideration?
I think after four years many are bored with of Brexit and just wish it would go away. The reality is there is quite a lot of gamesmanship and politicking going on, but ultimately we expect there will be a deal. The contours of the deal, I think, are relatively straightforward and it is not really in anyone’s interest to not have a deal; however we cannot rule out the possibility of a deal not happening, which would make things slightly messy. But if anything we think much of the damage to the UK economy from Brexit has already happened; we have seen a big decline in business investment in the UK and post any deal there might be a positive bounce. So on the expectation there will be a deal we are relatively positive on the UK.
What is the appeal of being style agnostic and what are factor risks?
In general we are style agnostic. What that means from a bottom-up perspective in building a portfolio is that we can wander around the style boxes, so there are times when we might appear in a growth box and times we might appear in a value box, and it is very much a function of what we are doing from the bottom up rather than a top-down view. Factors are very important. We think it is key for diversification, but also for trying to really highlight and accentuate the skills that we have as stock pickers. Following a process which seeks to minimize factor risks and not end up being too style driven is important because markets do change structure; they change in terms of what drives them and if you become too styled then you can blow up quite badly when there is a style rotation.
Do you retain a focus on global and in particular emerging markets?
About 45% of the revenues of the European equity market now are derived from Europe itself and 55% from outside of Europe. Within that almost 40% comes from emerging markets, with the largest by far being Asia ex Japan, in particular China; therefore European equities have been driven by emerging markets as much as Europe itself. We see plenty of companies exposed to some of the really key structural trends that we observe. We also find other companies that are maybe not driven by the same key structural trends but are attractive in their own right and are trading at low valuations. Further out we see other areas, perhaps some of the airline stocks will become very interesting when travel comes back; so there are plenty of things in European equities that are attracting our interest.