– In Europe, the focus of attention is on the war in Ukraine which, in turn, would delay economic recovery at a global level. Could there be differences in this regard between countries?
Yes, without a doubt, raw materials are going to have a greater effect in Europe, while other regions less dependent on Russia, such as the US economy, will have a much smaller effect. We are positive in the US, while in Europe we do believe that it will affect and within Europe we believe that the United Kingdom is already seeing that it is performing better and we believe that it is an opportunity because the companies are trading at historically low prices.
– Do you see the British stock market interesting in a 2022 that is less convulsive?
With the volatility of the war in Ukraine comes opportunities. We who are dedicated to selecting companies, the United Kingdom would be a clear case for a long time, since Brexit. In the last two years, the big asset allocators have not opted for the UK, which has caused valuations to be historically low in companies that we believe are very good. In the last two or three months we have seen a better performance of the FTSE 100 which means that it is starting to attract investors. We as a British firm have a very good knowledge of the market, we think that it can be a defensive and countercyclical bet in an environment like the one we are seeing. The FTSE 100, as a reference index, is a selective index that is more exposed to energy and, compared to the MSCI or the US indices, trades with very cheap ratios. We believe that the trend of recent months that the FTSE 100 did better can continue or thank goodness the Euro Stoxx 50. Since last year we have been seeing which pension plans from outside Europe, Asian and Latin American, began to be interested in the United Kingdom.
60-65% of FTSE 100 business results depend on the outside, not the UK domestic economy. The most typical are banks like Standard Chartered, British American Tobacco, Rio Tinto Group… they are listed in London but their income comes from all over the world. We are facing a changing economic context, globalization since Donald Trump, Brexit and now the possible Russia-China clampdown means that many global companies have to rethink their supply chains and this will also mean an important change when it comes to investing.
– What are Columbia’s strategies in the UK market that you would highlight? What sectors prevail?
We are a manager with more than 40,000 million dollars (36,365 million euros) invested in the United Kingdom, that is, it is in our DNA. This is the result of the selection of companies, if it then operates in a country or in a sector… but we like the company because we can continue investing. We have more than 10-15 funds in the UK, but I would highlight two funds that have been very successful: one with a more defensive bias called UK Equity Income Fund that focuses on quality companies and also have consistent dividends. As a result of Covid-19, many companies cut their dividends but that trend is reversing, manager Richard Colwell looks for quality companies that pay dividends. It is a fund that has consistently beaten its reference index, we believe that active management can be an opportunity because arbitrage operations can be carried out.
The fund focuses on the long-term valuation opportunity, it is not focused on short-term strategies such as the cycle of increases in raw materials that we believe is not sustainable, in fact some metals are seeing prices above 10 times its minimum trading point, this is absurd. We do not believe that such high ratios will cause a super cycle in raw materials. That is why we invest in consumer companies, media companies such as ITV plc, banks…
The other fund is the UK Fund, which is a more balanced fund, not so much that they are defensive through a dividend approach, but companies that offer long-term growth. We are now in a situation of value vs growth, but we believe that a way of investing through growth is already assimilated, we study what the growth of the company is and we know and have proven that in the long term the growth of a company makes you have more consistent results in the long run and that’s what gets you a quote. The UK Fund is a commitment to growth companies, we do not have energy companies in the fund, which is something that in the short term could correct the fund if raw materials run amok. Due to valuations, companies in the United Kingdom are thrown away being a bit colloquial, which is something that we see in multinational companies just because they are listed in the United Kingdom.
These two funds provide growth through the Threadneedle UK Fund and a defensive bias for the current environment with the Threadneedle UK Equity Income Fund.
– Beyond the United Kingdom, and at a time when volatility continues to reign in the markets, where is there value due to geographic bias?
There is an open discussion in the market about investment style, value vs. growth, due to sector bets… The rise in raw materials has meant that portfolios that have energy do very well, while those that do not have energy do not do so well. , but this does not mean that increases in basic resources will be sustainable over time. Where are there opportunities in this environment globally? We believe that it is going to be a year of great volatility, we are seeing the Vix at 33 points, but also rotations from growth to value and also sectoral rotations, which will generate large changes in profitability in very strong sectors in a very short time. Changing portfolios because they have done better in the last week is a big mistake. What are the portfolios that will do it better? Those that have a sectoral balance, not those that have big bets.
Growth in the US is going to be more protected than in Europe, in Europe we are going to have more extensive inflation than expected, lower growth and the specter of stagflation is going to have an effect on many companies due to lower disposable income for consumers and lower growth. These effects are more controlled in the US, it is true that they suffer a CPI close to 8% but they have energy self-sufficiency, they do not depend on Russia and that makes them stronger. In the US, where we find more value is in small and mid-cap companies, companies that depend on domestic consumption and that from a results point of view it is even good for them to have some inflation because they translate price increases into better results.
In this segment we have a historical fund such as the Threadneedle American Smaller Companies Fund, managed by Nick Javier, with excellent results. It is a fund that does not have large sectoral bets, it focuses on domestic consumption in the US and there we think that the war will not have an effect and the central banks will take measures to control inflation. US small and mid-cap companies are our bet, we believe that managers can find more value compared to an ETF and this is demonstrated by the fund’s returns.
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