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Alternative Market Briefing

When active investors need to get away from indices

Tuesday, November 08, 2016

Komfie Manalo, Opalesque Asia:

Thijs Hovers, co-portfolio manager and co-owner of Lucerne Capital said that active investors need to get away from indices when they are trying to find out where the growth is in Europe.

Speaking at the latest Opalesque 2016 New York Roundtable, Hovers explained that a large part of European equity indices are banks, which are suffering from low net interest margins, profitability and earnings. Another heavily weighted sector within the indexes is integrated energy/oil services, whose earnings have collapsed as well. Utility companies are under pressure as well from nuclear write down liabilities and legislative pressures from the governments that basically want more money from them. "So you are left actually with sort of half of the index which is just not growing their earnings, and the other half is being basically deflated away by that," Hovers added.

He said, "If you look at Europe top down, taking say the STOXX 600 to STOXX 50, you don’t see a phenomenon. But then, if you go again a little lower in the market range, for example, look at the MDAX in Germany or the Dutch mid-cap index, et cetera, there the earnings and free cash yields are actually growing at a quite high rate especially if you take the sectors out that are under pressure. I think that’s a big problem for the European indices in ge......................

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