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French fund buyers feeling bullish

French investors are most keen on European equities, absolute return strategies, passives, and Asia ex-Japan equities, according to the latest insights from Last Word Research.

Only developed market bonds or ‘govvies’ are notably negative. Cash is negative – but that’s positive for all the other strategies.

The respondents to Expert Investor’s Future Flows survey are fund selectors, asset allocators and portfolio constructors working for mainstream financial institutions that use third-party funds.

Out of step?

Appetite for European and Asian equities among French investment managers remains strong, with US and Japanese equities picking up strongly.

However, the survey shows that sentiment towards global emerging markets is down slightly – but positive overall.

The overall positive view of French fund buyers is intriguing, considering their pessimistic view of the general economy.

As a recent paper produced by Natixis Asset Managers points out, the stock market is not the economy.

Large index players appear to be virtually unaffected by Covid-19, and they are likely large enough to play a role in holding up the broader market.

Time will tell whether this proves to be the case but there is a slight preference for large over small-cap stocks in France.

Perhaps there is a feeling that larger caps might be more resilient than their small cap counterparts if the impact of Covid follows the worst (rather than best) case scenario.

In the small cap space, president Emmanuel Macron has introduced various stimulus packages for start-up and home-grown tech firms.

French government support

Among the various measures, the €300bn French state loan guaranteed scheme known as PGE (Prets Garantis par l’Etat) has been broadly welcomed by investors.

Banks have played a key role in this and the pickup has been significant since inception.

Start-ups including tech firms with low turnover, should, in theory benefit from it.

But as Pierre Blanchet, who heads up the investment intelligence team at Amundi, warns; the jury remains out on whether this scheme as well as the other packages will be enough, longer term, to protect these businesses which are fragile and will be hurt by a deep economic recession.

For GEM equities, growth stocks are preferred over value; while value pips growth for European and US equities.

In line with the general sentiment across Europe, French investor attitudes towards developed market corporates and high-yield bonds have improved quite a bit.

However, the strongest demand is still for emerging market bonds and unconstrained bonds.

Convertibles have surged strongly too.

In sharp contrast to nearly all other countries, French investors are hugely positive on absolute return strategies.

Index-tracking products, multi-asset funds and convertible bond funds are some of their other favourite alternatives.

Multi-asset appeal

The appeal of the multi-asset approach is seen as pertinent right now – given the level of uncertainty both politically with elections looming and with the Covid backdrop remaining in view.

According to BNP Paribas Asset Management, there is no question that investing in the right asset class at the right time can bring significant gains.

But the margin for error is so small that finding the definitive bottom can either add substantial risk or have the portfolio sitting in limbo for quite some time and thus slowly degrading its value.

The right call, therefore, is to invest in strategies that diversify the risk cost-efficiently.

Key among such strategies, according to BNP, will be those that employ risk control and downside protection, as well as being diversified across multiple asset classes and markets.

French sentiments in other areas are broadly neutral.

Commodities have dropped sharply and enthusiasm for property remains tepid.

David Burrows

For more than 25 years, Dave has written for a wide range of newspapers and broadcasters including The Times, The Financial Times, The Independent, The Wall Street Journal, The Mail on Sunday, Reuters...

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