This would form the ideal backdrop for Denham as he takes the reins of Carmignac’s Luxembourg-domiciled Sicav founded in 1999, which had assets under management of more than €211m at the end of last year.
Denham formally took over management of the Grande Europe Fund on 1 January. However, he spent the preceeding three months reshaping the fund’s portfolio to his liking; a necessary move after several years of underperformance against its reference indicator, the Stoxx 600, with net income reinvested.
At the end of 2016, the fund was around 14% up on the previous three years. Though this compares with a rise of a little more than 21% for its benchmark, according to FE Analytics.
Experience is everything
Denham, who has a 20-year history of equity investing, says he focuses on companies that have stable returns and high profitability. While he is not concerned with the short-term economic outlook, he does share the current upbeat view of the industry.
"I have learnt from experience that it is dangerous to predict market movements over short periods of time."
“I am very optimistic we will get 10-12% earnings growth for 2017. It is also fair to say that within the investment community there is increasing confidence that number is going to be sustained.
“There has been a very strong rebound from the industrials sector as well as commodities and oil. And in the second half of 2016, we saw an anticipation of improvement from the banking sector.”
There has been a gradual recovery tracked across the European economy, evidenced by a modest 0.3% growth in eurozone GDP during Q2 and Q3 2016, following a 0.5% rise in Q1. Industrial output in the 19-country euro currency bloc was also up by 3.2% year on year in November as firms stepped up production before Christmas.
He says: “If we see the earnings numbers hold up and if economic indicators sustain themselves at these levels, it could be a good year for European equities.”
However, Denham, who was in charge of pan-European equities at Aviva Investors in London for 13 years before joining Carmignac, is a reluctant forecaster.
“The trouble is, I have learnt from experience that it is dangerous to predict market movements over short periods of time. My key message would be we can still find plenty of stocks that aren’t expensive and have good prospects.
“While I recognise there are good reasons for that improvement of cyclical confidence, for some of these areas, going into 2017, the risk/reward has already discounted a lot of improvement and good news.”
A strong hand
As he takes the fund forward, Denham is seeking businesses that exhibit high, sustainable return on capital and high profitability over an investment cycle.
“They have to have high returns above a given hurdle rate and low volatility. In other words, that return is stable.”
