Equity team at Danske Invest Europe keep heads cool and options open

When the financial markets walk over a cliff, investors need to stick to their strategies and capitalise on opportunities when they arise. We have spoken to Kasper Brix-Andersen, who heads up the equity fund Danske Invest Europe.

Since the first European Covid-19 death was reported on 21 February in Northern Italy, life in Europe has been turned upside down, with lockdowns, financial uncertainty and a particularly contagious virus. What initially was a regional health crisis in China at the start of the year spread rapidly in February and March to Europe, which quickly became the new epicentre of the disease.

Long workday focused on limiting losses

Everyday life has also very much changed for Kasper Brix-Andersen, who heads the team responsible for the equity fund Danske Invest Europe. That applies, not least, to his workday, which starts well ahead of the European bourses opening at 9.00am and currently does not end until the financial markets in the US close at 10.00pm. While equity markets have regained some of their lost ground, that does not change the fact that Europe’s stock markets have so far been the hardest hit. Kasper Brix-Andersen’s overriding focus in the past month has therefore been on limiting losses as much as possible and capitalising on the investment opportunities the coronavirus has also thrown up.

“When a crisis like the present one is raging, more or less everything gets pulled lower – it can’t be avoided. As active asset managers we can decide which equities we invest in, which provides us with quite different options for managing risk and capitalising on opportunities than if we had to track the broad European index,” he explains.

The European equity market consists of several thousand equities, of which around 600 are relevant for a fund like Danske Invest Europe in terms of size, liquidity, sustainability, etc. At the end of March, the fund was invested in 44 different European companies.

A firmly anchored strategy focused on quality

The extent and speed of the corona crisis has surprised Kasper Brix-Andersen. However, it has at no point prompted him to change the overall direction of the fund. On the contrary, the investment strategy has been a firm anchor in the past month.

“The most important thing you can do as an investor at a time like this is to avoid the panic that leads to short-term decision-making. We take a long-term approach to everything we do and have firmly stuck to our fully embedded and steadfast way of managing risk in the fund. That is also why we have not changed our strategy of investing in solid, quality equities. In fact, we have if anything raised the quality level,” says Kasper Brix-Andersen, who adds:

“For us, quality means those companies that are built on an attractive business model and which offer a sensible return on invested capital and have healthy balances. In addition, we place an importance on the company being well run, which can be seen in the way they manage their business in relation to factors like the environment and society.”

Capitalising on opportunities in the market

So far, most equities in Europe have been hit by double-digit price falls. That means a number of the companies the portfolio team at Danske Invest Europe have long had at the top of their wish lists – but which have been too expensive – have come down in price to a level that makes them attractive buys.

Kasper Brix-Andersen is also monitoring equities that perhaps have been hit hard in the short term, but which could potentially emerge stronger from the crisis. Paradoxically, government lockdowns across Europe also present a number of long-term opportunities for some of the companies that have been temporarily put out of action.

“When we search for equities during a crisis like this one, we carefully consider what long-term consequences the crisis may have for individual companies. For some companies, the events of recent weeks have eroded revenues that will never be recouped. But for other companies, their revenues have more been postponed, as the need or demand for their goods or services has merely been delayed. Hence, they can emerge from the crisis with revenues that are potentially higher than prior to the crisis,” says Kasper Brix-Andersen.

Focus now on the macroeconomic consequences

The major global markets have corrected somewhat after central banks around the world reacted by easing monetary policy and injecting huge amounts of liquidity. Hence, in the period up to the start of April, it looked like the worst uncertainties and panic had faded. But does that mean we will soon return to normal? Kasper Brix-Andersen is not keen to answer the question, as according to him we are still in the middle of the crisis. Nevertheless, he senses a change in the market.

“In my view, investors are entering a new phase. The central banks and the assistance packages enacted by various countries have successfully dampened the worst of the panic in the markets. Going forward, investors will tend more to consider the macroeconomic consequences of the health crisis. What will be decisive here is how deep the crisis becomes and how long it lasts. There will be a time after corona, and so as investors we will continue to have a long-term focus, maintain our investment strategy and capitalise on the opportunities that arise,” concludes Kasper Brix-Andersen.

This material has been prepared for information purposes only. It does not constitute investment advice. You should always be aware that historical return and forecasts on future developments are not a reliable indicator of future return, which can be negative. Always consult with professional advisors on legal, tax, financial and other matters that may be relevant to determining the suitability and appropriateness of an investment.

Notes
1) Data for Danske Invest Europe. Over the past five years the fund has generated the following returns in DKK: 2015: 8.5 %, 2016: 3.9 %, 2017: 6.7 %, 2018: -10.4 %, 2019: 25.9 %. Historical return is not a reliable indicator of future return.

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