Xavier de Buhren’s biggest sector conviction since the beginning of the year has been in IT services. The Citywire A-rated manager of the Mirabaud – Equities France fund suggests that IT is the best way to play the digital revolution and access the European and French recovery.
The CHF 62 million fund’s high conviction strategy combines top-down and bottom-up approaches, and currently holds 30% mid-caps and 70% large.
The IT sector plays to both approaches, de Buhren explains. The top-down approach comes from the fact that companies in all industries must keep up with the digital revolution, while the many small French companies in this sector play into the bottom-up strategy.
The portfolio’s exposure to the sector stands at 14%, with a benchmark overweight of 5%, making it the biggest bet in the low volatility strategy. That exposure was reduced in June, and the lead portfolio manager decided to take profits off the table following a series of strong price increases for mid caps in the sector. This reflects de Buhren’s opportunistic style for the daily management of the portfolio; he readily buys and sells during exaggerated market fluctuations.
IT holdings within the portfolio include Devoteam, Capgemini, Alten and Altran, which have all seen top line growth improvement, reasonable valuations and margin recoveries. Many of the smaller companies in the portfolio fit in with de Buhren’s focus on domestic firms, including local plays such as GroupOpen and Aubet.
‘Today, regarding our top-down approach, we prefer the domestic play. Since 2008, French companies have worked very hard to lower their break even and cost optimisation,’ he says.
‘The balance sheets are very clean now and there are favourable credit conditions. The volume and the margins are 30% below the level of 2007, so there is huge potential for margin expansion in French companies.’
Domestic plays are also a good way to hedge against foreign exchange fluctuations, he says.
This article was originally published in the September 2017 issue of Citywire Switzerland.