Daniel Häuselmann, head of Swiss equities at GAM, has explained why he's positive on small- and mid-cap stocks, cautious on IPOs and underweight banks in a conversation with Citywire Switzerland.
The Citywire AAA-rated investor manages the GAM Swiss Opportunities and GAM Swiss Equity funds, which have achieved returns of 20.8% and 23.1% over three years respectively, as of May 2018.
Both funds' top allocations include Roche Holding, Norvartis, Nestlé, Logitech and VAT Group.
Häuselmann said his allocations to small- and mid-cap stocks are broader than his benchmark, the Swiss Performance Index (SPI). While the index has around 85% in large-cap stocks and 15% in small and mid caps, Häuselmann's funds both invest approximately 53% in large caps and 47% in small and mid caps.
He said: 'We all know that valuations in general are stretched, so we're looking for companies that can grow disproportionately over time. We find more companies with this kind of profile in the small and mid cap area.'
Häuselmann added that his small- and mid-cap picks tend to be in the industrial, technology and healthcare technology sectors.
Coming in hot
When it comes to jumping on the IPO bandwagon, Häuselmann makes sure to look critically before getting on board.
'IPOs are interesting, but we're very selective. The market is pretty hot,' he said. 'We have only participated in one [so far]. There’s a very high standard to get into our portfolio because we want to hold the investment for a long time,' he said.
'We want good management, a really strong competitive position and a high barrier to entry. Typically, we don't invest in a company that's fifth, sixth or seventh.'
Häuselmann also said that he always maintains a strategic underweight to banks. For the past 12 months, he has kept that underweight in both funds to about 2% for big banks and 8% for financials.
'At the moment, we are not very bullish on banks, but for protection reasons we hold a position to hedge against benchmark risk. If you have no banks at all, it’s a bit too risky. Performance can suffer relative to the benchmark if banks do have a good run,' Häuselmann said.
'Banks are very difficult to judge, because not many things are clear. We're living in a world of regulations, valuations for most asset classes are pretty high and you don't really get a tailwind from the financial markets,' he added.
'We're not bearish in the sense that we think there will be a big correction, but we need to accept that equity returns will be lower than in the past given these valuation levels.'