Pioneer Investments in the press European Equities

Pioneer Investments
in the press
European Equities

Pioneer Investments
European Equities
Global Investing
European equities finding some takers
July 2012
European equities are getting some investor interest again.
As the ongoing debt crisis erodes consumer spending and
corporate profits, the euro zone’s share in investors’ equity
portfolios has fallen in the past year –Reuters polls show
holdings of euro zone stocks at 25 percent versus over
36 percent a year back. Cash has fled instead to U.S. stocks,
opening up a record valuation gap between the European
and U.S. shares. (see graphics below from my colleague
Scott Barber). In fact no other region has ever been
considered as cheap as the euro zone is now, a monthly
survey by Bank of America/Merrill Lynch found in June.
That could offer investors a powerful incentive to return,
especially as there are signs of serious efforts to tackle the
crisis by deploying the euro zone’s rescue fund.
Pioneer Investments has moved to an overweight position
on European stocks. While Pioneer’s head of global asset
allocation research Monica Defend stresses the overweight
is a small one compared to, say, its position in emerging
markets, she says:
Euro Zone vs. U.S. Equity Valuation
25 I/B/E/S 12m forward PE ratio
20
15
10
5
94 96 98 00 02 04 06 08 10 12
MSCI U.S. 12.1 MSCI Euro zone 8.8
Source: Thomson Reuters Datastream Reuters graphic/Scott Barber 7/10/2012
Euro Zone vs. U.S. Equity Valuation
1.4
1.2
1.0
0.8
0.6
94 96 98 00 02 04 06 08 10 12
Euro zone 12m forward PE divided by U.S.
Source: Thomson Reuters Datastream Reuters graphic/Scott Barber 7/10/2012
Euro Zone /U.S. Relative Equity Performance
160
140
120
100
80
60 *U.S. dollar based total returns
Euro Stoxx 50
underperforming
90 92 94 96 98 00 02 04 06 08 10 12
Euro Stoxx 50 relative to S&P 500* - rebased to 100 in 1988
Source: Thomson Reuters Datastream Scott Barber 07/11/2012
We are now more positive on Europe than we have been for
a long time before. From mid-June after the election in
Greece and the EU summit we have become more
constructive on European equities and now favour
European equities to the U.S market…
Defend notes that European equities now boast average
dividend yields of 4-5 percent, rising to 6-7 percent for
high cash-flow generating firms — higher than other
developed markets. She adds:
Very slowly, all the politicians have become conscious of
the need for the euro crisis to be resolved. The reason we
were sceptical before was not equity market fundamentals
but the macro economics and the risks stemming from the
euro crisis.
JP Morgan Asset Management also recently lifted
European equities to overweight, citing valuations. The
firm’s David Shairp cites Goldman Sachs research showing
that European equity valuations are implying long-term
earnings growth of minus 6.3 percent a year for the next 20
years. He told clients in a note:
This writer is not optimistic about the resolution of the
euro zone’s problems but he is not that bearish on the
outlook for a corporate sector that boasts some world class
companies, which have the option of trading outside their
home region.
© Thomson Reuters 2011. All rights reserved.
By Sujata Rao

Pioneer Investments
European Equities
Euro Stars A-rated manager:
Europe’s consumers are not dead
June 2012
There are undoubtedly reasons to be pessimistic on
Europe at the moment but the consumer sector is
breaking new ground and showing strong potential
despite the doom and gloom.
That is the view of Euro Stars A-rated manager Andrew
Arbuthnott, lead manager on the €850 million Pioneer
Funds - Top European Players fund, who explains why
he has taken a large overweight position in the
consumer discretionary market.
His fund, which he has run since July 2001, has
returned 31.4% over the past three years. Over the same
period, its benchmark, the MSCI Europe TR, rose 27.2%
in euro terms.
By Chris Sloley
http://citywire.co.uk/global/euro-stars-a-rated-manager-europesconsumers-are-not-dead/a595115
European Equities: Beacon of Hope
Things are changing fast in Europe, and some investors are
afraid of what this may bring. Fiona Rintoul finds out what
equities managers can do to allay fears.
August 2012
Six months ago, a Greek exit from the euro was
unconscionable and austerity dominated the
political agenda in Europe. Now, a Greek exit looks likely.
And since France dumped Nicolas Sarkozy for the
socialist François Hollande, growth has been the
buzzword.
Things are changing fast in Europe and no one knows
where the next turn will take us. For European equities
managers, this means their job has changed, too.
Managers such as Alice Gaskell, who co-runs the
BlackRock Continental European Income fund, are
dusting off their politics degrees, hitherto unused since
university.
“We have spent a lot of time talking to political lobbyists
and politicians,” says Gaskell.
But if it is important to understand the political
background in Europe, it is equally important to be able to

Pioneer Investments
European Equities
tune out the political noise to catch the corporate beat
beneath. The Greek situation is causing uncertainty, and
investors do not like uncertainty, but it may also create
opportunities.
“Buy when blood is running in the streets,” says Mark
Glazener, head of global equities at Robeco. “If Greece
leaves the euro that creates turmoil. We would see that as a
buying opportunity rather than a reason to sell.”
Valuations
European equities have become the unloved asset class,
with Asian and US investors, in particular, running scared
of the ongoing uncertainty in the eurozone. But now that
markets have punished European companies for the
economic frailty that surrounds them, many fund
managers see bright spots in the gloom.
Fear makes people do stupid things, such as ignore
company fundamentals and the short-term opportunities
that volatility can bring.
Fabio Di Giansante, senior portfolio manager for
Euroland equity at Pioneer Investments, tries to capitalise
on those short-term opportunities, while at the same time
pursuing business as usual. “We don’t see why we should
change our approach,” he says. “We don’t know what the
politicians will do but we do know that domestic GDP
growth won’t be fantastic in Europe. We therefore want to
be exposed to global themes.”
For Di Giansante that means seeking out companies that
do good business in emerging markets and the United
States. Increasingly, this leads him to consumer rather
than industrial names.
In China, in particular, western industrial companies no
longer enjoy the advantage they once did because
indigenous companies have caught up in terms of quality.
“On the consumer side, the [quality] advantage is still
there,” says Di Giansante. “It’s related to brand, especially
luxury brands. The first thing people in China do in terms
of spending is buy Western brands – not just Louis Vuitton
but also food brands and personal care items.”
Others play this global exposure theme a little differently.
Philippe Brugere-Trelat, portfolio manager at Franklin
Templeton for the Franklin Mutual European fund, thinks
the China and Asian story is “a little long in the tooth” and
looks instead for companies with exposure to Latin
America and North America.
Not so large is another interesting theme for some
European equity managers. Small-cap stocks should
outperform large-cap stocks in Europe, says Thierry
Cuypers, head of small and mid-cap equities management
Europe at Natixis Asset Management (NAM). And,
importantly in the current climate, small-caps should
resist well if there is a big sell-off in the market.
Whether European equity managers operate in the small
to mid-cap universe or the large-cap universe, and
whatever theme they pursue, there can be little doubt that
this is a stock-picker’s market.
Bunga-bunga
In broad terms, European equity managers are agreed on
geography. It is a case of run away screaming from
Portugal, Greece and Spain and cherry-pick opportunities
in Northern Europe, particularly non-eurozone countries,
such as the UK, Switzerland and certain Nordic countries.
The main area of disagreement is Italy. For some,
economic mismanagement and bunga-bunga parties have
created a cocktail too poisonous to try. Others, however,
are prepared to have a sip.
Sell-off
And even southern Europe could get interesting if there is
a sell-off.
“Our strategy at the moment is to favour strong companies
that benefit from growth outside Europe,” adds Gaskell.
“But if there is a sell-off, we will look again at the domestic
options in the universe and we will look into southern
Europe again. Currently, Spain, for example, still doesn’t
look very cheap.”
Everything is up for grabs in Europe, and it is hard, if not
impossible, to have a fixed strategy. There are various ways
to deal with that.
You have to be dynamic and flexible, says Di Giansante.
You have to be patient, risk-averse and very diversified,
says Brugere-Trelat.
You probably have to be all of those things. And you have
to second-guess politicians – to say nothing of their
electorates.
Volatility is not going to go away any time soon, but it is the
reality that a lot of European companies are in good shape.
©2012 funds europe By Fiona Rintoul

Pioneer Investments
European Equities
Comeback star Matti eyes EM names for
future growth
August 2012
A new approach to risk and holding European small
cap names exposed to emerging market growth have
helped Pioneer’s Cristina Matti return to the Citywire
ratings after a five year absence, the Italian manager
has revealed.
Matti, who runs the Pioneers Funds European Potential
portfolio, regained her Citywire A-rating across all eight of
the applicable markets this month after having lost her
rating in August 2007.
Commenting on her return to the ratings fold, which saw
Matti noted as one of the strongest newly-rated names in
the most recent ratings round-ups, she said a change to the
fund’s risk management approach had been pivotal.
‘We took a strong decision to work more closely with our
colleagues that are doing the risk management and having
a solid understanding of the risk within our portfolio,’ she
told Citywire Global.
‘There has been an improvement there and it has led to
better performance. It has been a very difficult period, that
was the case in both 08/09 and, as we have seen, last year
as well.’
This more considered approach towards risk, Matti said,
had definitely shown itself over the past year given the
difficulties in the eurozone and widespread difficulties in
the market.
At present 39.2% of the Pioneer Funds European Potential
fund is positioned towards the UK, with seven UK-listed
names featuring in her top 10 holdings. However, Matti
said this is partly a defensive move to weather difficulties
in the European market.
‘It was hard to escape the macro impacts and what is
happening there. Since the beginning of the year we have
been completely out of periphery exposure, we have
nothing in Greece, Ireland or Portugal and we have one
single holding in Spain, but that is mainly exposed to Latin
America.’
‘In terms of the holdings in Italy, these are all
different to the cyclical or financial names we have seen
struggle. The way we have managed the eurozone crisis
is mainly through avoiding the periphery and we
have taken large bets in the UK and, for instance, the
Nordics.’
Looking ahead, Matti said she would consider moves back
into peripheral countries and was mindful of investors
missing out on good opportunities due to broader
concerns about sovereign debt.
‘We are always keeping an eye on the broader market and
if there is a compelling opportunity in Spain and Portugal,
we may decide to take a position,’ she said.
‘We are not just neglecting companies because they are in
the wrong country. In the periphery there could be real
opportunities because they are now trading at very low
multiples which have been sold off just because of where
the company is.’

Pioneer Investments
European Equities
EM opportunities
While tapping into the European periphery is unlikely at
present, Matti is more candid on the opportunities
presented by European small cap names with strong
growth potential beyond their domestic borders.
‘In the small and mid-cap space there are quite a lot of
companies which are exposed to the emerging markets
and that is not just limited to Latin America – it is Eastern
Europe, Russia, India, China and so on.’
‘There are a lot of European names which are exposed to
these markets. This is one driver I can see for future
growth and we should benefit from this theme.’
She named Austrian engineering company Andritz
exposed to Asia, as well as Norwegian oil service group
PGS which is exposed to Brazil and Russia.
‘These are very well-run companies that are playing very
general themes in their businesses and as they grow they
are going to be more exposed to the emerging markets
rather than just their domestic markets.’
Over the past three years, the Pioneer Funds European
Potential fund has returned 50.5% in euro terms. Its
Citywire benchmark, the MSCI Europe Small Cap CR,
rose 39% over the same period.
By Chris Sloley

Pioneer Investments
European Equities
Pioneer outlines European equity themes
November 2011
EM consumers, luxury and sporting goods, and advertising agencies are
among the themes selected in Pioneer’s latest review of European equity and
the sectors it believes are best placed to experience positive tailwinds.
The key growth trend underlying the selection of these
themes is rising incomes in emerging markets.
Pioneer points to figures sourced from HSBC, suggesting
growth in income per capita will be over 700% in China
between 2010-2050. For India it is nearly 600%. Russia and
Malaysia will experience rates over 500%. Even Hong
Kong, already one of the world’s richest in per capita
income, will see a gain of about 200% over the period.
The resulting benefits will be strongly felt by European
companies in particular sectors, Pioneer argues. This
includes Italian and Swiss luxury goods, luxury cars made
in Germany, packaged foods from the likes of Nestlé and
Unilever, Scotch and Cognac, as well as cosmetics from
France. Selling all of this will be the likes of WPP and
Publicis, the advertising agencies.
© Incisive Media Investments Limited 2011
By Jonathan Boyd

Pioneer Investments
European Equities
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Citywire: Euro Stars A-rated manager: Europe’s consumers are not dead (12th June 2012); Citywire: Comeback star Matti eyes EM names for future growth (1st August 2012); Funds
Europe: European Equities: Beacon of Hope (13th June 2012) and Reuters: European equities finding some takers (11th July 2012).
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