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 June 2016
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.
- Europe ex UK
- James Sym
Important Information: The views and opinions contained herein are those of Schroders’ Investment team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and 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. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. UK: Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA, is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored. Further information about Schroders can be found at www.schroders.com US: Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of Schroders plc, a SEC registered investment adviser and is registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan providing asset management products and services to clients in Canada. 875 Third Avenue, New York, NY, 10022, (212) 641-3800. www.schroders.com/us