Interview with Jean Louis Delhay, Head of Diversified Management and Employee Savings
Why invest in this fund?
CM AM Convictions Euro's main objective is to support the long-term development of high quality growth companies that create value and therefore generate performance for unitholders of the fund.
This strategy offers an attractive solution for investors wishing to position themselves in the eurozone equity markets, as the fund selects for them the best companies in the three market segments: Small, mid and large caps (the latter representing at least 50% of the assets). This all cap approach also has the advantage of allowing the management team to understand the value chains and ecosystems of different industries, as well as major long-term trends.
This PEA eligible fund invests across the full market capitalisation spectrum and across a wide range of business sectors. The management team implements a flexible and integrated strategy:
- for the core of the portfolio, a selection of companies well positioned on major structural trends.
- and also, in diversification, a selection of undervalued securities.
What is your investment process?
CM AM Convictions Euro is a stock picking fund that responds to a conviction based management.
Based on the principle that a company's long term stock market performance is closely linked to its operational performance, the selection of securities is based, for the core of the portfolio, on three criteria: Steady revenue growth, significant growth in operating income over time, and free cash flow generation.
The management team works on the basis of monthly scoring, which highlights the most interesting companies.
She then works to meet the management teams of the companies identified, which allows her to understand their business model and strategy, understand their growth drivers, etc.
Finally, it models the medium term value creation potential, using an internal valuation model based on the ratio of enterprise value to operating income. When the stock market price of a share is attractive compared to the target value thus determined, the management team takes long positions.
The core of the portfolio has assumed a bias on quality growth companies, which operate in markets with high barriers to entry, enjoy competitive advantages and significant market share, and have pricing power.
The investment team focuses on companies positioned in dynamic markets, which are supported by major trends, which further accelerate their growth.
It thus identified four major global structural trends:
- Technological innovation and the digitalisation of our economies, with the development of e commerce, autonomous cars, industry 4.0, cybersecurity, 5G, etc.
- The search for well being and a better quality of life, particularly through sport, a more natural diet or the search for a more comfortable habitat
- The sustainable economy with the energy transition, the circular economy and sustainable mobility, for example through the development of renewable energies, smart connected electricity grids, new and greener means of transport, etc.
- Life sciences and medical progress, with very dynamic niche markets such as medical tests, hearing aids or ophthalmic surgery
Does the fund include an extra financial dimension in its investment process?
The CM AM Convictions Euro fund received the SRI France label. As such, it integrates a significant SRI/ESG dimension into its investment process. ESG criteria are included in the fund at 3 levels:
- during the first stage of generating ideas and defining the investment universe, the management team incorporates extra financial criteria for the selection of securities from the ESG scores of the Responsible and Sustainable Finance division of Crédit Mutuel Asset Management (FReD). The fund uses a selective approach. The 20% of companies with the lowest ESG score are removed from the investment universe.
- during the second phase of due diligence and valuation of companies: The proprietary valuation model incorporates a specific WACC (Weighted Average Cost of Capital) bonus/malus system based on the ESG rating of each hedged company.
- during the third stage of construction of the fund's model portfolio:
The two KPIs used are 1/carbon intensity 2/the percentage of women on the Board of Directors. For these two KPIs, the fund's model portfolio must always have a better score than that of its investment universe.
What are your main convictions? Does the fund have sector and geographic biases?
It is mainly invested in the financial, industrial, information technology, healthcare and utilities sectors, which account for around 66% of assets.
The core of the portfolio is Franco German and Dutch, representing 72% of the fund's net assets. The three countries have many high quality companies, including industrial jewels.