Sonia Fasolo, equity portfolio manager at LFDE explains why an extremely polarised market is ideal for stock picking. Fasolo talks about her funds, LFDE´s ESG policy, her singing at the company´s choir and why she ended up working in finance.
Marcoview
Despite the agitated geopolitical situation in 2019 (Brexit, trade war), central banks’ policies – which have become accommodating once again on both sides of the Atlantic – pushed the markets to new peak levels. While the horizon became brighter at the end of 2019 (orderly Brexit, progress in the trade war), a few dark clouds have emerged (Middle East, mixed macroeconomic indicators).
2020 should also remain marked by ongoing low-interest rates. Against this backdrop, which should continue to benefit growth stocks, we are nevertheless continuing to pay more attention than ever to valuations and the underlying growth prospects. Selectivity, therefore, remains essential in an extremely polarised market, which is ideal for stock picking
Echiquier Major SRI Growth Europe
For its 14th year in existence the Echiquier Major SRI Growth Europe fund – which I co-manage with Adrien Bommelaer and Matthieu Détroyat – delivered its best annual performance in 2019 (+40.0% vs. 26.1% for its benchmark index, the MSCI Europe NR).
2019 turned out to be favorable to the “growth” management style as well as high-quality stocks presenting good ESG – environmental, social and governance – profiles, the fund’s territory of choice. The companies that made the biggest contribution to the fund’s performance, which now has assets under management in excess of €700 million, include for example CELLNEX, healthcare stocks like ASTRAZENECA and GRIFOLS, and technology stocks like ASML and SAP.
Echiquier Positive Impact Europe
This SIVAC fund, which invests in European companies that provide solutions to the UN’s sustainable development goals (SDGs), delivered an excellent performance in 2019, the best in its history, at +32.9% vs. 26.1% for its benchmark index, the MSCI Europe NR. Over three years, the fund’s annualized performance is 10.5% (7.5% for the index). This is in addition to its social and environmental performance, measured every year in our impact report. Reflecting investors’ growing appetite for impact investment, assets under management more than doubled in 2019 and currently stand at €155 million.
What sets you apart?
What sets us apart is first of all our commitment to responsible investment. In 2007, LFDE formally set out its own methodology for analysing ESG criteria – Environmental, Social and Governance – with particular attention paid to governance. Echiquier Positive Impact Europe was one of the first listed equities impact funds2 launched in France and Europe. As it is a shared return fund, LFDE pays back some of its management fees to La Fondation Financière de l’Echiquier, which supports education and measures to combat social exclusion.
Portfolio construction
As the management process for our six funds has been given the French SRI label (around 30% of our assets under management), it comprises at least two ESG filters that apply at an early stage of making investment decisions. We, first of all, take account of sector exclusions criteria such as tobacco and arms, as well as a minimum ESG score threshold to select a company.
Our ESG analysis methodology scores companies out of 10, with Governance counting for 60% of the rating. These filters allow us to reduce the investment universe by 20-50%. We then look at companies’ financial data, their outlook and valuation.
Managing an SRI fund also involves regular dialogue with companies in the portfolio. We formalize specific areas of progress with them and track progress over time. A responsible investor also has to exercise its voting rights at general shareholders’ meetings, which we do systematically for all fu
Companies you best avoid
We have a strict sector exclusions policy. Controversial weapons, thermal coal production and tobacco are excluded from all our funds. Our SRI funds such as Echiquier Positive Impact Europe and Echiquier Major SRI Growth Europe have a more restrictive exclusion policy and also exclude fossil energy producers, for example. We also avoid companies with poor ESG scores as they present a high level of non-financial risk.
Why ESG?
Last year we published a study on performance and SRI, which highlights the relationship between companies with ambitions in terms of ESG and their share price performance. This shows that taking account of ESG criteria favors performance over time and that taken separately, ESG criteria are all sources of long-term performance. The best option is still to take account of all three criteria at once. Furthermore, companies scoring badly on governance generate the weakest performance over the long term.
Responsible investment is above all about common sense. ESG issues are sources of risk or opportunity for companies; therefore, any good manager needs to take them into consideration. This allows for a 360-degree view of companies. That is why LFDE decided in late 2017 to roll out ESG integration across its entire range.
We believe that education is vital not only to raise investors’ awareness about crucial ESG issues but also to combat received ideas about SRI. To enable the management team to get to grips with the subject, LFDE’s SRI team has trained 35 analysts and managers in ESG scoring of companies. We firmly believe that the boom in SRI means that financial advisors need to be convinced in order to gain the support of individual investors.
That is why we launched the SRI School, to give wealth management advisors and private bankers the knowledge and tools needed to be able to propose responsible products to their clients. More than 600 people had already benefited from this free training at the end of 2019.
About work
When I was young, I was fascinated by the financial markets and eager to understand how it was possible that the value of a company may change every second. This is how I decided to graduate in Finance, a sector where women are dramatically underrepresented. I started as a financial analyst. This choice was to the detriment of my first passion, science and in particular biology.
The huge amount of reporting we have to produce! Otherwise, it is one of the most exciting jobs: learning every day about new companies, businesses, sectors and above all, through sustainable investment, felling that finance can have a positive impact and that we can be part of this change.
Hobbies
I like singing in LFDE’s choir. I spent my spare time making manual activities and cooking with my kids and read a lot, economic newspapers, novels, science books…
