Small caps in particular have proven their ability to generate superior returns over the long term.Henning Gebhardt
Universal-Investment: Mr Gebhardt, the Berenberg Aktien - Strategie Deutschland is in many ways a successful continuation of a fund concept that has stood the test of time in the over 16 years you have been managing this type of strategy at DWS. What can investors expect?
Gebhardt: With the Berenberg Aktien-Strategie Deutschland, I remain true to my beliefs and continue the success of the all-cap strategy with a focus on growth stocks. The investment philosophy that underlies this approach relies, among other things, on a strong allocation to small caps and clear overweights or underweights in larger stocks. I also follow an opportunistic approach. The focus is on growth stocks; the cash allocation can be managed flexibly.
Universal-Investment: A strong small cap component is an important part of your strategy. What do you expect to achieve with the small and mid cap stocks in your portfolio? According to which criteria do you select the appropriate small caps for the portfolio? Which small cap universe do you rely on?
Gebhardt: Small caps in particular have proven their ability to generate above-average returns over the long term. The challenge is to find the “hidden champions” that can outperform the broader market in the long run. We focus on promising quality companies with superior structural growth and success prospects. We typically start by evaluating the overall industry and the company’s competitive position with a focus on drivers including demand, industry momentum and market potential. We also engage in discussions with the management to determine in how far the official strategy is being implemented and to understand the incentive and ownership structure. I also find interesting stocks outside of the benchmark (HDAX) – in theory, all German stocks including new issues are eligible for inclusion in the fund.
Universal-Investment: Which industries or sectors do you currently prefer for the portfolio?
Gebhardt: From an industry perspective, we currently favour industrials, IT, consumer staples and discretionary as well as health care stocks. These sectors in particular offer interesting companies with very strong structural growth prospects. For instance, we see potential in the ongoing integration of industrial production and modern IT & communication technology that relies on digitally integrated systems – an area in which some smaller German companies offer interesting solutions.
Universal-Investment: Sustainability is a crucial component of your investment strategy. Which criteria must a stock meet to be considered as sustainable? And what makes a sustainable stock a candidate for inclusion in the portfolio?
Gebhardt: The question for sustainability is: What defines a sustainable company? For our analysis, we rely on environmental, social and governance - or ESG - criteria. The last aspect, i.e. governance, is particularly important for our stock selection. We engage with the management to determine whether it is able to generate sustainable return for shareholders in the future. We are not interested in short-term shareholder value maximisation. Risk mitigation is another issue. The precarious situation of the automotive industry is a recent example – as it is currently difficult to fully assess the risks and implications, we only hold highly selective positions at the moment.
Universal-Investment: Which developments do you expect in the German stock market until the end of the year? Will the recovery of the German economy continue?
Gebhardt: The German economy is in a very good position with strong company earnings - a solid foundation from which the market should be able to move higher. The German market continues to outperform the European investment universe – domestic growth in Germany is stable since the relevant macroeconomic data and sentiment indicators remain very strong and continue to point upwards. Smaller market corrections won‘t hurt in this setting. Until the end of the year, the market could again reach its previous peaks. In my opinion, the only significant risk to this scenario would be a fast rise in interest rates which we currently do not expect to happen. The development of the US dollar is also a drag at the moment.
Author: Henning Gebhardt, Berenberg
Date of issue: 11/2/2017
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