Two selections for the French economic recovery

Jonathan Roy
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Two selections for the French economic recovery

As is evident in other Western European countries, the recovery in France is being driven by the consumer and the reopening of the hospitality industry and retail. 

The French unemployment rate fell to 8% in the second quarter and judging by the number of people in Parisian bars and shops lining the Avenue des Champs-Élysées, this is likely to fall again through the rest of 2021.

Indeed, ING highlighted that one of the main issues impacting the French recovery is the lack of labour.

These selection focusing on growth in France take into consideration the consumer driven recovery from COVID-19, but also the wider implications of easy monetary policy. 

The ECB are debating how, and more importantly when, to ease monetary policy and their choice of path forward will have a significant impact on French equities.

iShares MSCI France UCITS ETF

The first selection is a broad product in the MSCI France UCITS ETF that tracks French Large and Mid-Cap Equities.

The composition of the index plays nicely into the key themes we see driving the French economy higher in the consumer recovery and ongoing financial conditions.

The two top holdings in the ETF are LVMH and L’Oréal. Both are global companies that provide exposure to the French economy and risk appetite for European equities, but the global recovery. 

Booming sales in the luxury sector make LVMH a particularly attractive prospect given the group recorded revenue of 28.7 billion euros in the first half of 2021, up 56% compared to the same period a year prior.

L’Oréal much the same saw a jump in revenue to the tune of 20.7% (LFL) driving a 21% increase in Earnings Per Share.

In addition to the draw of the top two constituents of the index, the ETF provides investors with holdings benefiting from the French economy. 

The bank BNP Paribas, a facilitator and beneficiary of the growing French economy accounts for 3.7% of the index posted a 26% jump in Net Income in the second quarter.

Carrefour

Carrefour shares have dipped since the failed merger with Canadian Alimentation Couche-Tard Inc and the weakness raises eyes brows with shares changing hands under 16 Euros. The proposed merger was at 20 Euros.

The fierce fight over Morrison’s highlights the interest for Europe’s best supermarket brands and it’s likely interest could once more ignite in Carrefour. 

Notwithstanding potential M&A activity, the group carved out a 34% EPS increase in the first half driven by strong growth across all geographies.

France, still by far Carrefour’s largest market, saw first half revenue excluding fuel rise by 4.7% (LFL) to €9.65bn.

Latin America was the displayed the strongest growth with a like-for-like 10.5% sales rise to €5.79bn.

With Adjusted Net Income of €337m in the first half, shares are attractively valued.

 Assuming we see further growth through the second half, the earnings multiple could be in the range of 16x-18x which is more than reasonable given the dividend yield is 3%.

The company is also pouring over the possibility of disposing of international unit’s including that of Poland, a particularly tough market to crack. Tesco disposed of their Polish unit earlier this year.

The latest UK stocks being snapped up by fund managers

Nick Sudbury
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The latest UK stocks being snapped up by fund managers

By Nick Sudbury
Select UK companies still offer considerable value .
Simon Gergel, manager of the £789m Merchants Trust (LON: MRCH), looks for attractively valued companies with strong fundamentals that are ‘expected to pay a dividend yield above or in line with the market average’. 
Based on this approach he has recently added positions in the supermarket giant Tesco, which is yielding almost four percent; the information provider Relx that is paying 2.2%; energy supplier Drax Group, which has a yield of 3.4%; as well as Duke Royalty that is on a yield of over six percent. 
Another...

Two investment trust bargains

Nick Sudbury
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Two investment trust bargains

The £1.7bn Murray International (LON: MYI) is a global investment trust that aims to achieve an above average dividend yield, with long-term growth in dividends and capital ahead of inflation. It is currently yielding an attractive five percent with the shares available on a wider than normal discount to NAV of seven percent.

Manager Bruce Stout has been in place since June 2004 and has achieved 16 consecutive years of dividend growth. He has delivered decent overall returns since his appointment, although the relative performance has been disappointing in recent years because of the portfolio’s tilt towards dividend-paying stocks in emerging markets that have been out-of-favour with investors. 

Murray International has the highest yield in its Global Equity Income peer group and has substantial revenue reserves that should enable it to continue to increase the dividend in future years. The Board is committed to limiting the discount through the use of share buybacks, so there is real scope for the rating to recover, especially if revenue returns from Asia improve in the coming months.

At £164m, Middlefield Canadian Income (LON: MCT) is a lot smaller, but it is paying a similarly attractive yield of 4.8% with the shares available on a wide 16% discount to NAV. It aims to provide investors with a high level of income, as well as capital growth over the longer-term, from a portfolio of US and Canadian dividend-paying stocks.

Since its inception in July 2006 the fund has generated a NAV total return of 200%, which is well ahead of the increase in the benchmark of 158.7%. Canadian companies currently trade at a discount to their US peers, hence the reason the manager has reduced his US weighting to just eight percent of the portfolio. 

The largest sector exposures are financials and real estate that account for a massive 60% of the assets. If inflation takes hold and interest rates are kept low, as looks likely, the fund could do extremely well with the broker Investec having a buy recommendation on it. 

Evergrande misses offshore payment again

Liam Roche
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Evergrande misses offshore payment again

Investors remain concerned over lack of communication and potential losses

Evergrande has missed paying a bond interest payment again according to two bondholders.

It is the second time the property developer has missed its offshore debt obligations in seven days.

However, the firm did make a partial payment to some of its onshore investors.

The firm, facing the pressure of its more than $300bn debt, was obligated to pay $47.5m in a bond interest payment.

The total amount of the liabilities are the same as 2% of China‘s GDP, as concerns remain over the fallout and its potential impact on the world financial system.

Investors are concerned by Evergrande’s lack of communication as they face the potential of having to take big losses.

“I can’t see there being much willingness to give a fairer outcome to offshore bondholders rather than onshore banks, let alone house buyers and people who have lent onshore through the personal loan structures,” said Alexander Aitken, a partner at Herbert Smith Freehills in Hong Kong.

“Of course legally there is also structural subordination from being offshore, which means lenders to Evergrande’s onshore subsidiaries get paid before lenders to the parent company or any offshore debt issuer.”

What will the end of furlough mean for the UK job market?

Liam Roche
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What will the end of furlough mean for the UK job market?

Over the past 18 months, as many as 11.6m jobs have at some point been on furlough.

Figures from HMRC revealed that at the end of July 1.6m people were still on furlough.

As of 19 September, the Jobs Recovery Tracker showed there were 1.9m active job adverts in the UK.

Danni Hewson, AJ Bell financial analyst, comments on the end of the Coronavirus Job Retention Scheme:

“There will be plenty of employers hoping that Friday does finally deliver the anticipated flood of labour back into the market but in reality, nobody really knows for sure how many of those listed as still on furlough at last count have been welcomed back into their old jobs.”

“We can surmise that certain sectors like travel won’t be able to keep paying every staff member that’s been kept on the books but now those traffic lights have finally been switched off, even travel will be considering whether winter sun might provide a bonanza.”

Many recovering businesses won’t want to lose skilled workers from the fold and for them the timing of furlough’s end might provide a solution.

“Christmas is rapidly approaching and names like Amazon, John Lewis and Next are already jostling to pull in the temporary staff they’ll need to keep deliveries flowing over the all-important golden quarter.”

“It might not be the solution furloughed staff had been hoping for but taking a cut in hours would at least give them hope that their career path is still heading in the right direction, even if it has to take a little detour. And with sign-on bonuses or perks like free food being dangled like carrots, a cut in hours does open up opportunities at least in the short term.”

UK car exports plummet

Liam Roche
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UK car exports plummet

Major UK car brands no longer in favour in foreign markets

Demand from abroad for cars made in the UK has plummeted as output fell over recent weeks.

Despite lockdowns coming to an end, just over 1,000 cars are being made per day in the UK.

Recently average annual volumes were as high as 4,500 per day.

Data shows a 27% year-on-year fall in production in August. This means the country is set of its worst yearly performance in tens of years.

Trading partners that have previously been fond of classic British companies such as Mini, Jaguar, Rolls-Royce et all, are showing dramatically less enthusiasm.

Exports to China are down 58% while exports to America are down by 65%.

Sales to Australian buyers have plummeted by 75%.

“While not the only factor at play, the impact of the semiconductor shortage on manufacturing cannot be overstated. Carmakers and their suppliers are battling to keep production lines rolling, with constraints expected to continue well into 2022 and possibly beyond,” Mike Hawes, chief executive of the SMMT, said.

“Job support schemes such as furlough have proven such a lifeline to automotive businesses, yet its cessation today comes at the worst time, with the industry still facing Covid-related stoppages which are damaging the sector and threatening the supply chain in particular. Other countries have extended their support; we need the UK to do likewise.”

Inflows into Blackrock’s ESG ETF may not reflect best practices

Liam Roche
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Inflows into Blackrock’s ESG ETF may not reflect best practices

The largest ESG ETF, BlackRock’s $22.5bn iShares ESG Aware (ESGU) product, is making progress on its thematic label.

However, its inflows may be stronger than its ESG practices, according to Bloomberg Intelligence (BI).

Inconsistencies in stock selection and sector allocation are becoming more important as regulators scrutinize ESG funds more closely.

There seem to be some conflicts between ESGU’s holdings and the methodology and marketing documents of the index it tracks.

“Our analysis finds it holds firms with ties to controversial weapons, which doesn’t follow the exclusion commitments of the tracked index,” said Adeline Diab, Head of ESG and Thematic Investing EMEA at Bloomberg Intelligence. “ESGU’s weight in oil and gas, and exposure to companies linked to oil sands, such as ConocoPhillips, raises more questions. Funds’ approach and rigor in embedding ESG will take on more importance as regulators focus on mis-selling.”

While MSCI’s USA Extended ESG Focus Index methodology targets peers with higher ESG ratings, subject to maintaining risk and return characteristics similar to the parent index, BI’s analysis still points to selection inconsistencies within sectors, with poorly rated firms from an ESG and financial perspective favoured over well-rated ones.

“Though ESGU may embed risk and returns characteristics in determining stock holdings beyond the fund’s sector-weight alignment to the benchmark, its allocations point to some divergences within selection, Bloomberg Intelligence believes. In several sectors, including energy, technology and financial services, companies showing both good ESG Scores (A or AA) and strong recommendations were excluded, such as NiSource, Dropbox or the Intercontinental Exchange, in favour of counterparts with lower ESG scores and ANR ratings, including NRG Energy, Palantir or Schwab.”

Investing in Life Sciences and Health Care with Deepbridge Capital’s Andrew Aldridge

UK Investor Magazine
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Investing in Life Sciences and Health Care with Deepbridge Capital’s Andrew Aldridge

The UK Investor Magazine Podcast welcomes Andrew Aldridge, a Partner at Deepbridge Capital.

Deepbridge Capital is the manager of a £200 million range of tax-efficient EIS and SEIS funds including the Deepbridge Life Sciences EIS, Deepbridge Life Sciences SEIS and Deepbridge Technology Growth EIS.

Andrew joins the Podcast to focus on their Life Sciences funds which account for roughly £50m of their £200m investments.

We discuss how the pandemic has increased investment in Life Sciences and Health Care as investors seek out opportunities in the evolving health care system.

Andrew highlights a selection of companies Deepbridge have added to their portfolios and the key trends they see developing in the sector.

We explore the most important factors Deepbridge consider when selecting early stage companies for their portfolios and delve into the journey’s of some of their portfolio companies.

FTSE 100 defies economic woes

Liam Roche
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FTSE 100 defies economic woes


There is a decent showing across European equities including a 0.6% gain in the FTSE 100 to 7,148.

“That’s quite surprising given how a cocktail of issues have been clouding the market in recent sessions, namely rising bond yields making tech stocks less attractive, ongoing supply chain issues, the spike in energy prices and broader inflation, and the Evergrande drama still playing out,” says Russ Mould, investment director at AJ Bell.

The UK market was propelled by miners, oil producers and financials – all beneficiaries of strong economic activity, which is again perhaps a surprising movement given growing fears over global economic growth as we head towards 2022.

“Oil producers are benefiting from higher oil prices but demand for miners and financials might represent investors rotating once more from high growth stocks towards lower rated names that offer growth at a cheaper price, even if that growth is less racy.”

IPOs were in the spotlight as two new entrants got off to a good start, and one recent name dug itself a deeper hole.

“Oxford Nanopore floated at 425p and had hit 570p within the first hour of trading. Among small caps, Made Tech listed at 122p and quickly moved higher to 148.5p,” said Mould.

“In contrast, Parsley Box hung his head in shame as its shares continued to fall lower. Having listed in March at 200p, the company issued a shocking update over the summer which pulled the price down. The stock has slumped even further to now trade at 77.5p after further setbacks, representing a 61% decline since IPO.”

FTSE 100 Top Movers

Anglo American (3.14%), Diageo (2.37%) and Evraz (2.33%) are the top risers on Thursday morning on the FTSE 100.

Melrose Industries (-3.04%), Barratt Developments (-2.6%) and British American Tobacco (-2.08%) make up the bottom three.

Pound dips on mounting inflation concerns

Liam Roche
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Pound dips on mounting inflation concerns

GBP now flat for the year versus US dollar

The pound has fallen to its lowest point against the dollar in 2021 amid fears that the UK could see high inflation and lower growth.

Despite an early interest rate rise being anticipated, the pound is beginning to “behave like an emergency market currency” said a City strategist, as drivers queued up for fuel across the country.

Governor of the Bank of England Andrew Bailey also warned that the economy is seeing worse than expected growth.

“I expect us to be back to the pre-pandemic level in the early part of next year, possibly a month or two later than we thought we would be at the start of August,” Bailey told a European Central Bank panel.

The pound dropped to its lowest level against the dollar since December 2020 amid talk of stagflation.

Having been one of the best performing currencies this year on the back of the vaccine roll-out, sterling is now flat against the dollar over the course of 2021.

“The pound is still suffering from the perception of domestic shortages, higher inflation and the prospect of a winter of discontent,” Neil Jones, head of FX sales at Mizuho Bank, said.

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