Partner Insight: Isaac Chebar, manager of the DNCA European Select Equity Fund, discusses why big box retailers shouldn't be discounted - despite the growing number of e-commerce upstarts
These are harsh times for many long-established big box retailers. As they lose market share to newcomers, big retailers find themselves fighting for their futures, consigned to apparent irrelevance by the disruption of their sectors.
The Amazon model is among the biggest threats. Now approaching a 50% market share of US online sales, the online giant is investing heavily to try to replicate that dominance in Europe. Meanwhile, agile new start-ups, unencumbered by legacy businesses, are making inroads too.
In some cases, however, the markets may be too quick to write off the old guard. That is certainly the view of Isaac Chebar and his team of portfolio managers of the DCNA European Select Equity Fund at DNCA Investments, an affiliate of Natixis Investment Managers.
A contrarian view
The fund has a contrarian bias. It is designed to seek out undervalued equities in continental Europe. But while challenging the market consensus on several fronts, he is candid about the current underperformance of value stocks. Across developed markets, these have been outpaced by growth stocks since 2009, barring a brief rebound in late 2016.
One of the key reasons he highlights is the decline in bond yields brought about by the central banks' easing of monetary policy.
That has a disproportionate effect on companies with heavy capital investments and assets. Their challengers, meanwhile, effectively benefit from ‘free capital' that helps them advance into their markets. "Established companies have responsibilities to deliver growth and dividends to their shareholders. But start-ups and the tech giants have the freedom to take market share without necessarily making a lot of profit", Chebar points out.
Click here to learn more about Isaac Chebar's process for picking quality value stocks in Europe.