Watch/Listen

60 seconds with James Sym on value opportunities in Europe

James Sym explains why value stocks with good cashflow potential represent an attractive opportunity.

14/06/2016

James Sym

James Sym

Fund Manager, European Equities

Value stocks have underperformed

Within European equities, I would say that the best opportunities over the next 12-18 months are going to be in the value end of the market.

This is a part of the market that has underperformed hugely over the last five or six years since the financial crisis. It has underperformed by so much that a lot of these stocks are very cheap now.

Focus on cashflow

I am selectively buying banks, insurance stocks, commodity-sensitive businesses, and telecoms that are perhaps a little bit economically sensitive but where I think I can get very good free cashflow.

Typically for a big oil company I’ll be buying it today on a low amount of cashflow, thinking that perhaps in five years’ time I can make 20% free cashflow yields, which is a very attractive potential return that I could make out of those businesses.

Quality and growth stocks look expensive

Then I look at the other half of the market – the higher quality, growth area of the market – where most European investors are focused and where most European funds are invested. I look at a lot of those stocks and actually find them quite expensive.

I think you’ve got a huge dispersion and a very interesting opportunity set within European equities between value stocks which are very cheap and look very attractive, and then growth stocks which are overvalued.

Important information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This article is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.