europe manager david dick says increased stock-specific investment will serve investors well
Goldman Sachs believes equities are to resume their outperformance of bonds and cash and is positioning its Europe portfolio to take advantage of this stance.
The need in Europe for continuing corporate restructuring and increased investment in equities by savers and pension schemes should provide a favourable structural backdrop for shares, according to co-manager of the Luxembourg-based Goldman Sachs Europe fund, David Dick. He said this climate is strengthening the group's belief the European market offers opportunities for long-term capital appreciation.
Dick said: 'The past four years have been characterised by record levels of market volatility and violent swings between styles, sectors and stocks. This has constituted a stern test of our ability to deliver consistent performance in European equities.
'Our investment philosophy and process are driven by our belief that outperformance is created by a long-term focus on quality companies with excellent management at attractive valuations.
'Our risk budgeted focus on bottom up investment has helped us to avoid a number of stocks that have suffered on the basis of questionable accounting practices and weak balance sheets.'
The managers of Goldman Sachs Europe Portfolio focus on finding high quality firms, favouring companies with strong market positions with strong management with potential to drive growth.
The fund's firm bottom up style and long-term outlook are tailor made for the current market environment, according to Dick.
'There are no free rides for companies now. Quality businesses with quality managers that are more transparent and robust will survive in this market, as weaker players fall by the wayside,' he said.
'We are dedicated to a bottom-up, fundamental research-driven approach to active equity within a strong framework of risk management.
'Specifically, we believe proprietary research is the foundation of fundamental analysis. We believe we are able to add most value through our bottom-up approach to stock selection, which demands first-hand knowledge of the companies, sectors and markets in which we invest.' The 20 analysts on the European equity team are organised into industry teams, which cover the consumer, financials, industrials and technology sectors of the market.
This allows them to specialise in a particular sector and companies, Dick explained. The sector teams work closely with their counterparts in Asia, Japan and the US to ensure they are in touch with global factors that may impact the stocks, which they cover.
He added: 'Many companies in Europe sell their products all around the world and we believe this global coverage is essential to understanding a company's potential.'
The European analysts follow between 12 and 14 stocks each, covering a universe of 250 companies between them, with a bias towards large cap stocks.
They rate companies with scores from one to five in terms of shareholder value, according to the business and management, with each given equal weight.
When analysing quality in a business they try to ascertain sustainability, robustness of the business model, transparency and predictability, Dick said.
The score each company receives determines the manager's faith in it and the size of position taken, although a maximum weighting of 3% above the MSCI Europe index is observed.
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