The drive for ‘disruptive’ ideas in business is creating hot money flows and instability, and investors should instead target companies improving their existing positions, says Citywire A-rated Gilles Guibout.
Rather than diving into newly launched or untested companies, Guibout, who runs the AXA WF Framlington Eurozone fund, said he is looking at companies that are able to adopt, adapt and improve in line with the major changes in their respective sectors.
Speaking to Citywire Selector, Guibout said that areas such as data management, logistics and improving worker efficiency do not solely affect tech companies.
‘This disruptive story is what we are hearing across automotives, industrials and retailers, but investors really need to cut to the heart of this. They need to see what companies are adjusting to, changing consumption patterns and improving existing efficiencies.
‘This means, rather than thinking in broad thematics such as robotics or infrastructure, it is about the existing companies in other areas that stand to benefit. There are lots of companies either directly or indirectly exposed to these trends and that is where real value is.’
Adapt and excel
Guibout singled out Dutch company ASML, which is a major player in semi-conductor technology, which has improved strongly and adapted to increase demand. This is while traditional companies such as retailer Inditex have gradually adapted to a changing retail environment.
‘It is not an overnight or crash-course thing. Inditex started five years ago to notice this trend and evolve. It has improved digitally and has pronounced vertical integration from production through to distribution,’ he said. ‘You wouldn’t think of these firms when you think of disruption, but they are benefiting.’
Guibout – who admittedly has a pronounced overweight to technology – is conscious of not being drawn into fast-growing areas of the market due to increased investor interest.
‘We have seen money come into certain areas and fund managers have benefited as a result. We are aware of that but as we enter 2018 we don’t necessarily believe these areas will justify the valuations, so we would urge caution on areas currently showing high levels of flows.’
The AXA WF Framlington Eurozone fund returned 28% in euro terms over the three years to the end of November 2017. This compares to a 30% rise by its Citywire-assigned benchmark, the MSCI EMU TR EUR, over the same period.