EuroBusiness Media (EBM): Groupama Asset Management is launching a new fund, G Fund European Equity High Dividend. Violette Grzywna, welcome. You are Portfolio Manager of European equities at Groupama Asset Management. Could you tell us a little more about this fund and explain why you launched it in the current environment?
Violette Grzywna: This fund will invest in high-dividend European equities, which means we will seek dividends above the market average. In our view, this fund meets the demand not only of our institutional clients but also of the market, which is nowadays looking for stabler investments in a very uncertain economic context. As it happens, dividends on equities have proved relatively stable over the long term.
EBM: What is distinctive about your management process and what is your performance objective?
Violette Grzywna: Our management process consists in targeting companies in our investment universe that will have a stable dividend over the long term. In doing so, we will not simply replicate the index in the portfolio – the index of high-yield stocks, high dividends – but instead we will also analyse companies in terms of their balance sheet, their business, their management quality. As regards the balance sheet, we will look at cash flow growth and growth in the distribution rate, keeping in mind that too high a distribution rate may concern us somewhat regarding the dividend’s sustainability. This is just one example among many. Our objective is to beat the MSCI Europe, at any rate in the long term, given that the entire high-dividend section, high-dividend equities in the index, have beaten the global index over the long term.
EBM: Why in your opinion should the investor seek yield on the basis of equity dividends rather than corporate credit?
Violette Grzywna: Before discussing corporate credit, it should be said that the rate of return on sovereign bonds is itself very low. So this is another argument in favour of dividends. But it’s also true that high-dividend equities have caught up with the return on corporate bonds, particularly in sectors like telecommunications, whose dividend yields are much greater than the yields on bonds in the same class. On the other hand, in times of crisis, we think this asset class is stabler and more liquid and is easier for us to cover than corporate bonds.
EBM: But doesn’t the current relatively anaemic and uncertain economic environment represent a risk for future dividends?
Violette Grzywna: Worldwide, all companies have cleaned up their balance sheets compared with the last crises in 2000 and 2008. Balance sheets show a much lower level of borrowing, and companies now have decent cash flow. Historically, the free cash flow ratio on dividends is more than acceptable. So we think they must be able to maintain this level of free cash flow. It is now our task to seek out stocks for which we have greater assurance that dividends will be maintained in the months ahead.
EBM: What types of companies meet your criteria and what types of companies do you wish to have in your portfolio at the moment?
Violette Grzywna: The main sectors we hold in the portfolio are telecommunications and utilities – big contributors in terms of dividends. But we also hold healthcare stocks and a number of oil companies, which should offer stable returns year after year. That’s what we are looking for. Conversely, we hold a fair few industrial stocks and stocks in commodities such as chemicals, which offer very little yield. And, despite everything, we will also hold the financial sector, through real estate companies, various insurance companies and even banks very selectively.
EBM: Violette Grzywna, European equities Portfolio Manager at Groupama Asset Management, thank you.
Violette Grzywna: It’s a pleasure.
