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Rising risk aversion leads Robeco star to bolster defensive plays

Rising risk aversion leads Robeco star to bolster defensive plays

The recent risk-off move in global equity markets has seen Citywire A-rated manager Chris Hart bolster holdings in European aerospace and large-cap Swiss pharma.

Hart told Citywire Global he had opted to add Apple as well after its share price fell to around $500 per share.

The global equity specialist works for US-based Boston Partners, a specialist boutique within Robeco, and runs the $220 million Robeco BP Global Premium Equities fund.

The recent additions, Hart said, represented a move towards a greater value slant within his bottom-up investment approach.

He told Citywire Global: 'Historically we have always been able to find pockets of mispriced stocks. We had the US sub-prime crisis, and then ongoing fallout in parts of the eurozone. Even three years ago we were able to buy the major packaging firms but recently there have been less opportunities.'

Hart and 13 analysts use a quant-screen to assess 8,500 developed world stocks. They then apply an approach called the 'Three Circles' process, which locates stocks displaying all three criteria: valuation anomaly; a quality bias with higher than average return on capital; a catalyst to boost return on equity.

This leaves the team with a universe of around 1,300 global stocks. Hart said they have recently been finding more one-off opportunities and idiosyncratic investments.

While there had been a string of macro shocks that had allowed for plenty of mismatching opportunities over the past five years, there had been less chance to do so more recently, according to Hart.

Topping up on defensives

Recent moves have seen Hart able to increase exposure to European aerospace and defence stocks such as French group Safran and UK group Meggitt.

This is because Hart believes fears over cuts in US defence spending have hit stocks in Europe a year later than their US counterparts.

'We have been able to buy into Safran and add to Meggitt over the past month as both are sound businesses where we understand the mid to long term trajectory of the businesses regardless of the short term negative effect of budget cuts on their defence divisions.'

Similarly, Hart has been able to increase his exposure to two Swiss large cap pharmaceuticals – although he said he was unable to name the stocks directly - which he said have been sold off unfairly due to having significant biotech exposure.

'Over the last few weeks we saw the euphoria over biotech stocks vanish and the sector got hit. We think this is a short term dislocation and that nothing is wrong with the strong fundamentals of the underlying businesses.'

Buying Apple

Similarly, Hart thinks fears over reducing margins and cost pressures at Apple have been overdone and he brought back in when the share price dropped to around $500 a share.

'Apple has its issues but we think it, along with Samsung [also in the portfolio] will both be winners over the next two years. We are not looking 10 years down the line. We just think that it can still generate free cashflow and growth and seems a good opportunity.’

Hart believes it is being unfairly treated because of its name, and that it looks too cheap trading at 11 times one year earnings.

'We look at companies relative to the whole market, not just in their sector and if it was an autos supplier or similar industrial with the same mature growth profile, it would be trading at 18 times earnings, not 11.'

Over three years to the end of March, the fund has returned 44.8%. Its Citywire benchmark, the MSCI World Value TR USD, rose 36.05% over the same period.

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