A-rated Kranson: stable staples will help shelter investors

12/7/2016, Citywire Selector

With major market uncertainty and further volatility expected with the French and German elections next year, consumer staples is proving the place to be.

That is according to Vontobel’s Daniel Kranson, who runs the Vontobel Fund-European Equity fund.

Speaking to Citywire Selector, Citywire A-rated Kranson, who currently has 40.6% of the fund allocated to consumer staples, said the sector is even more attractive due to the rocky environment the world is currently in.

'One of our largest overweights is consumer staples, it’s a substantial overweight in the portfolio, and it’s an attractive sector to us,' he said.

'People will continue to use deodorant, they will continue to drink coffee, and people will continue to give their pets food, give themselves food and you find those companies within the consumer staples space.'

Despite having 21.6% of the fund exposed to the UK, Kranson said the UK-listed companies he holds could benefit from the weaker pound should a ‘hard Brexit’ scenario occur, and said events on this scale will not affect consumer buying habits.

'Consumers around the world will continue to use their products regardless of the outcome of any macro issue that appears in the news.'

'When negotiations start, there could be a rise in bitter EU/UK rhetoric which could shake market confidence until an exit package is established. This could prove a difficult backdrop for the European banking system to sort out its long-festering problems.'

Financials out of focus

Kranson currently has 4.9% allocated to financials and said, despite its prominence in the current market, the sector is not particularly attractive to his team.

'While financials might be doing well in the market now, we’d much rather put capital behind companies that we know are going to generate good returns, as opposed to putting capital into businesses where the ROE (return on equity) is low.'

'Net interest margins could increase if rates start coming up- we are not sure they will come up so quickly in Europe right now,' he added.

Kranson, who took the reins of the €249 million fund from former star manager Rajiv Jain back in March, said it looks as though more extreme politicians could be voted in across the world and Brexit-led volatility is not yet over.

'Post-Brexit wasn’t as bad as people thought, but that issue will come back and it’s important to not forget about it. Elsewhere, the US has Trump, where the market has very much latched onto his initiatives in terms of infrastructure spending and tax regulations.'

'As global investors, we have seen this many times, where a character, a very unique personality comes in and promises a lot. At first, the market buys into it and then over time people come to realise how realistic policies actually are.'

The Vontobel Fund – European Equity fund returned 18.60% in euro terms over the three years to November 2016. This compares with a 14.95% rise by its Citywire-assigned benchmark, the FTSE World Europe TR EUR, over the same time period.

By Terri-Ann Williams
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