Long/short equity specialist Gilles Sitbon has turned bullish on Europe after a year of ‘brutal rotations’ and an increased focus on US market highs.
The Paris-based investor said it was now a contrarian call to buy long positions in European equities after a difficult year.
Sitbon, who runs the Sycomore L/S Opportunities fund, which has a European bias, made the comments at a roundtable event in London.
‘Tapering is now happening in the US and the dollar is strengthening, which has implications for the emerging markets, which won’t do as well as the currency appreciates.
‘On the other side of that, everyone hated Europe in 2014,’ he added. ‘However, I am much more bullish on Europe in 2015 because it is not a consensus time to be long Europe.’
Sitbon said he had partly taken the stance due to the increased attention on the US market following a period of record highs, which, he said, did not consider the potential ramifications of the fallout from a strong dollar.
‘People are more focused on the US market, for example, Morgan Stanley sees it hitting 2200, but I am not as optimistic as some. I think it will be hard for US companies to expand revenues, particularly internationally, with this strong dollar headwind,’ he said.
The US currently accounts for 4% of net exposure out of the total 51% net exposure in the fund, with the remainder being allocated to the European market.
The current weighting accounts for a 52-week low in the fund, with the US having been reduced from 9% at the start of the year down to 6% at the mid-year point and now down further.
Meanwhile, Sitbon said Europe is still yet to fully pull the trigger on its quantitative easing policy, which will mean companies are operating against a backdrop of increased liquidity.
He said this would be a welcome upturn following a difficult period over the past 12 months, which saw several market swings affect his performance.
‘What happened in 2014 was a series of rotations – from growth to value and in terms of cap-sizes – which has been very brutal. For example, small cap stocks were up 8% in the first quarter of 2014 and then lost around 6% in the third quarter.
‘One of the main drivers of this has been the ETFs, which is more accentuated in the US than in Europe, where they have risen as one of the biggest drivers of market selling. So, we need to remain vigilant on what is driving the market, is it a factor like this or something more fundamental.’
Sitbon runs a 44-stock, long/short equity portfolio which is primarily exposed to the technology (17%) and telecoms (11%) sectors, while the largest single position is in US-based semiconductor group Micron (3.8%).
The Sycomore L/S Opportunities fund returned 27.6% over the three years to the end of November 2014. This compares to the average manager in the Alternative Ucits – Long/Short Equity sector, who returned 14.5%.