Market: Health, communication, services… These anti-volatility listed companies for Nordea


(BFM Bourse) – With the rise of political and inflationary tensions, the deterioration of international trade conditions and the upcoming rise in interest rates, “stable stocks” could present themselves as protection against market volatility. These are companies reputed for the quality of their fundamentals, capable of getting through the sequences of market reversals without significant problems.

After the Covid “black swan” and the tremendous stock market rally that followed thanks to unconventional support from central banks and governments, investors are now facing inflation reaching forty-year highs. Since the end of February, the eruption of a new black swan with the Russian-Ukrainian conflict has driven up commodity prices, further reinforcing inflationary pressures, which reached 8.5% in the United States. United at the end of March.

In developed economies, the scenario of stagflation seems more and more likely as the prospect of a rate hike becomes more pressing – the Fed raised its key rates by 50 basis points in early May, now between 0.75 and 1% – and that growth forecasts are being revised downwards.

A new environment conducive to “stable stocks”

For Nordea Asset Management’s Multi Assets team, this new environment is obviously a challenge for investors and it pleads in favor of greater protection for portfolios invested in equities: the challenge, identifying resilient stocks, capable of get through sequences of high volatility or market reversals without significant problems. In this context, the giants of Nordea will select “stable shares” considered as values ​​which are characterized by a great stability of prices, profits, dividends, Ebitda or even cash flows.

“We seek to identify those stocks whose volatility, beta and risk are lower than the market, while scrupulously monitoring their valuation levels, the quality of their fundamentals and their liquidity” explains Nicolas Magnac-Dajean, product specialist senior at Nordea Asset Management. “The valuation criterion is essential since we are deploying a dual Value and Quality approach: the objective is to select securities with robust fundamentals but which we consider undervalued, therefore offering an attractive risk-return ratio”, adds Nicolas Magnac – Dajean.

Today, the “stable equities” category is characterized by a price/earnings ratio situated in its historical average (around 13 times the results at 12 months) when that of the equities of the MSCI World index evolves in the high range ( close to 18 times the results at 12 months). The growth of the results of these titles is also more stable over time, notes Nordea.

The advantage of “pricing power” in the face of inflationary pressures

In terms of allocation, the management team has made several adjustments in recent weeks. Exposure to securities in the technology sector was reduced in favor, in particular, of a strengthening of positions in securities from the “Consumer Staples” sector of everyday consumer goods, explains Nordea.

“The market movements of the past few months, whether in style or sector rotation, have created opportunities. Returning to relatively discounted stocks in this sector has allowed us to strengthen our ‘reservoirs’ of performance for the ‘future’ assures Nicolas Magnac-Dajean. At the same time, the weighting remained relatively high on stocks in the health, communication and services sectors. “Through the sectors represented, we maintain a strong diversification of the securities in the portfolio which includes more than 90 positions. This approach contributes to the preservation of performance in the context of an inflationary surge, unprecedented for 40 years, that we are going through” believes- he.

In addition, the identification of stable stocks displaying strong “pricing power”, i.e. the ability for these companies to raise their prices and thus maintain their profit margins thanks to high barriers to entry, also provides protection.

Among these companies, those with a leadership position, high value-added products, technological innovation or even marketing are considered attractive by the management team. “Through their position as leaders in their segment, these companies impose barriers to entry which contribute to preserving their results and their investment expenditure. Their ability to make their customers accept high prices allows these companies to transpose and pass on the rise in inflation”. Thus, Nordea appreciates for example values ​​such as Johnson & Johnson, Alphabet, Bristol Myers Squibb, or Iberdrola.

Extra-financial analysis to reduce risk exposure

Nordea reiterates the importance of extra-financial analysis to reduce volatility and risk exposure within the portfolio. The Nordea 1 – Global Stable Equity Fund and the exclusion policy implemented by the team make it possible to stay away from controversial and risky securities or sectors, such as tobacco or oil.

“Historically, risk diversification has been one of our main pillars, and we consider ESG criteria (environmental, social and governance criteria, editor’s note) among other risk control factors. in line with the Paris Climate Agreements and to exclude others, for example those in the oil sector.In concrete terms, oil stocks are facing increasing environmental regulatory risks, while the volatility of commodity prices is impacting negatively the stability of their fundamentals (margins, profits, etc.), explains Nicolas Magnac-Dajean.

“Thus, this filter is beneficial since it improves the quality of our selection, the companies that best meet our extra-financial criteria being most often those demonstrating the greatest stability. Moreover, given our ESG approach, the portfolio did not, and does not, have any exposure to securities sensitive to the Russian-Ukrainian conflict,” he adds.

For Nordea, the good performance of stable equities since the beginning of the year, without exposure to the oil sector yet one of the few in positive territory underlines the management company, seems to demonstrate that the combination of stable fundamentals and the integration of ESG criteria in risk management makes it possible to generate more resilient performance over time, by limiting the impact of major market declines.

Sabrina Sadgui

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