Negative interest rates, quantitative easing, a plunging euro and a soaring Swiss franc, Grexit in the air, war in Ukraine.
European investors don’t lack for things to worry about these days. Equity valuations are getting lofty, bonds can hardly get much pricier, and threats are growing on the horizon, including the likelihood of a U.S. rate hike that could roil markets around the world.
For money managers and asset owners, the prospect of modest returns and mounting risks adds up to a difficult investing environment.
“Pension funds face their biggest challenge in 50 years,” says Théodore Economou, head of multiasset business at Lombard Odier Investment Managers in Geneva and former CEO of the pension fund at European nuclear research group CERN. “You have to achieve targets that haven’t changed — 3 to 5 percent real returns — in an environment of zero interest rates.”
Many investors are rising to the challenge, though. We highlight some of the best with our European Investment Management Awards.
Pan-Europe Core Equity
Investec Asset Management
F&C Asset Management
J O Hambro CapitalManagement
Pan-Europe Large-Cap equity
Pan-Europe Small-Cap equity
BNP ParibasInvestment Partners
Pan-Europe Core Fixed Income
BlueBay Asset Management
Baillie Gifford & Co.
U.K. Core Equity
Standard Life Investments
U.K. Growth Equity
Jupiter Fund Management
U.K. Value Equity
U.K. Large-Cap Equity
Old Mutual Global Investors
U.K. Small-Cap Equity
Henderson Global Investors
U.K. Core Fixed Income
F&C Asset Management
U.K. Corporate Fixed Income
Royal LondonAsset Management
Mondrian Investment Partners
Schroder Investment Management
Emerging-Markets Local Debt
Hard Currency Debt
Global Unconstrained Fixed Income
Investec Asset Management
Institutional Investor screened leading European money managers based on performance and risk data from fund information provider eVestment and then consulted with European fund sponsors to determine the winners in 22 categories.
We also honor leading pension funds, based on our own review of the funds’ performance, strategy and leadership in the investor community. The winners include Henrik Gade Jepsen, CIO of Denmark’s ATP, who captures our Lifetime Achievement Award for maintaining strong performance at the $100 billion fund while evolving its cutting-edge approach to risk and keeping a firm grip on costs.
Record-low rates affect just about every investing strategy on the planet, especially in Europe, where the European Central Bank is putting fresh downward pressure on rates with a massive bond-buying program. That means big business for Stephan Ertz, who manages €1.3 billion ($1.4 billion) in corporate bond funds at Union Investment, the Frankfurt-based firm that wins in the Pan-Europe Corporate Fixed Income category. “Investors are looking for alternatives, so they go to corporate bonds,” he says. “People are chasing the same assets. We’re just at the start of this development.”
Ertz has been overweighting big credit spreads, convinced that the market is underestimating the prospect that Europe’s economy will pick up and put upward pressure on long rates. A major worry: Greece’s exit from the euro area. “The market is definitely not prepared for that,” Ertz said in a telephone interview on a day when antiausterity protests in Frankfurt put many firms, including Union, in lockdown mode.
At Old Mutual Global Investors, winner in the U.K. Large-Cap Equity category, veteran Richard Buxton has used his research-driven stock-picking skills to attract strong inflows since joining the firm from Schroders two years ago. His UK Alpha Fund, which typically holds some 35 stocks, has grown to £2 billion ($3 billion) from £150 million during that period. “Nothing I hold has yet got to a valuation level where I’m getting a nosebleed and feel like I absolutely have to sell,” he says. “But there are certainly some stocks I hold where, with the best will in the world, I cannot expect a further rerating.”
Robrecht Wouters, manager of the European Select Values Fund at J O Hambro Capital Management, winner in Pan-Europe Value, keeps his eye on the worst-performing stocks over the previous three and six months, hoping to find stocks that have been dumped for short-term reasons but remain fundamentally sound. “We are still analysts; we spend a lot of time meeting management of companies,” he says. “We spend a lot of time figuring why returns in certain industries can be high and be sustained.”
Both Wouters and Buxton are men of conviction, looking to buy and hold stocks for years rather than make short-term trades. Wouters bought five stocks last year; Buxton will usually open four positions a year and close four others.
Adopting a benchmark-agnostic approach and avoiding the typical U.K. bias to large-cap stocks has been the secret of success at Standard Life Investments, winner in the U.K. Core Equity category. Thomas Moore, who manages the firm’s UK Equity Income Unconstrained Fund, has a big overweight position of 61 percent in small- and midcap stocks, or three times their weight in the overall market. “We have to scour the entire U.K. market for ideas that have the best total return,” he says. Moore currently likes consumer and construction plays such as Tyman, a maker of door and window seals for residential and commercial buildings. “We have to scour the entire U.K. market for ideas that have the best total return,” he says.
With prospective returns looking modest by historical standards, many investors are gravitating toward multiasset solutions. At Investec Asset Management, winner in Global Balanced, Philip Saunders adopts a hedge-fund-style approach for the $2 billion Global Strategic Managed fund. He recently pared his overweight position in equities to 64.5 percent, feeling valuations were getting a bit rich. He also employs a variety of hedging techniques, using everything from volatility futures and options on stocks to shorting the Australian dollar to hedge emerging-markets exposure. “The secret to doing balanced is not having a balanced mind-set,” says Saunders. “It means you can bring a lot more to the party than simple equities and bonds.”
Our 2015 European Investment Management Awards honors some of the best investors in the business. See profiles of Lifetime Achievement Award winner Henrik Gade Jepsen, Centrica’s Chetan Ghosh, Lancashire County Pension Fund’s Michael Jensen, ABN AMRO's Geraldine Leegwater, Varma's Reima Rytsölä, AP4's Magnus Eriksson, CERN's Elena Manola-Bonthond, ERAFP's Philippe Desfossés, Linde's Christoph Schlegel, Inarcassa's Alfredo Granata, VBV's Gunther Schiendl and PKO's Wojciech Rostworowski.