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DACH Investment Landscape Trends 2022

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Source: Nasdaq IR Insight. DACH represents a synthetic, blended index of DACH companies

2022 has seen a steady stream of turbulent macro-economic and geopolitical events affecting global stock markets. Russia’s invasion of Ukraine, record-high inflation and monetary policy tightening have been among the key macro-themes that have driven recent market volatility and led to company fundamentals taking a back seat.

Nasdaq’s Advisory team looked at market performance and subsequent institutional investor flows across its clients in the DACH region (Austria, Germany and Switzerland) to see which trends have played-out over the period, and what recommendations can be made for Investor Relations professionals. Their findings were the following:

  • DACH markets have been broadly negative but more resilient than other markets across Europe.
  • While most sectors have lost ground, the variance across industry groups has been significant.
  • US institutional investors have increased their exposures to DACH stocks, possibly on valuation grounds, while UK investors have taken more of a pessimistic stance.
  • German institutional firms have also been bearish, perhaps as part of a broader asset rotation away from equity.
  • Institutional investor turnover remains at elevated levels and, as such, shareholder maintenance should probably take precedence over development.
  • That said, opportunities still exist for IR teams who are prepared to do the groundwork on building-out their pipeline of prospective investors.

…while DACH companies have suffered the same fate as other markets, there has been more resilience.

Significant variance in sector performance, while DACH markets have demonstrated some resilience

Analysis of equity market performance year-to-date reveals that while DACH companies have suffered the same fate as other markets, there has been more resilience, with year-to-date sector underperformance being generally less pronounced than the wider European region. This is especially the case with the Technology, Industrials and Financials sectors. As such, investors may have looked towards the DACH region as a safe haven.

Despite this, the variance in sector underperformance has still been significant and primarily driven by macro-factors beyond the control of most companies. As such, the specific sector that a company resides in has been the primary driver behind its relative performance.

DACH Institutional Flows_2022

Source: Nasdaq IR Intelligence. Data as of 31/05/2022

Inflows from value-seeking U.S. firms has helped to offset UK and German outflows

Analysis of institutional investor activity across Nasdaq IR Intelligence’s clients reveals some interesting regional rotations over the past 12 months.

Notably, the inflow of U.S. institutional money into the DACH region. Nasdaq has found this to be driven by Value-oriented names who are perhaps seeing the underperformance of European equities as an opportunity to buy into an oversold market. Favorable FX rates also helped purchasing power of U.S. investment firms.

U.S. inflows have been offset by a decline in the proportion of shares held by UK and German investors. One factor behind institutional outflows is likely to be a rotation of assets away from equity towards debt instruments, which are more common in the DACH region. A rising interest rate environment is likely to make debt increasingly more attractive in the coming quarters.

Key investor activity across the DACH region

Nasdaq IR Intelligence’s private ownership database of over 1,700 quoted companies provides unique contextual insight into the behavioral trends of institutional investors. Using a subset of companies located in the DACH countries, it is possible to identify some of the most significant investor activity seen in the region in recent months.

Top Five institutional holders in DACH

Top 5 Institutional Holders in DACH

Source: Nasdaq IR Intelligence. Data as of 05/31/2022

Sovereign fund Norges Bank remains the top institutional investor across the DACH countries and has increased its exposure to the region more recently. Its largest exposure is through Healthcare and Technology stocks. The investor also has a very strong Environmental Social and Governance (ESG) agenda.

DWS Investment in Frankfurt is the top holder of German equities, with a strong focus towards dividend-paying companies, especially via Thomas Schussler’s Top Dividende Fund.

The asset management arm of UBS AG in Zurich is the leading investment firm in Switzerland but also invests extensively outside of the DACH region across a broad range of strategies.

The top U.S. investor in the DACH region is mutual fund manager Capital Research Global Investors, which manages an array of dividend-focused income funds. The firm has recently been trimming its Financials and Industrials holdings, while buying Basic Materials and Technology. Despite being a top holder in the region, it has actually been reducing its exposure to DACH companies more recently.

Top Five institutional buyers in DACH 2022 YTD

Top 5 institutional Buyers in DACH_2022

Source: Nasdaq IR Intelligence. Data as of 31/05/2022

Evidence of increased market volatility, London-based hedge fund Marshall Wace LLP is the top buyer of DACH stocks Year To Date (YTD). The firm has recently picked up names in Financials, Utilities and Technology, largely through its Eureka Fund and predominantly focuses on global long-short investing.

In Zurich, Zürcher Kantonalbank (Asset Management) ranks second amongst the region’s top buyers and has recently increased its exposure to Real Estate, Healthcare and Industrials stocks.

Franklin Advisers in San Matteo manages many of the Franklin Resources Group’s dividend-strategies. Ed Perk’s Franklin Income Fund is a common feature across many European markets.

Meanwhile, CPP Investment Board and Harris Associates are both examples of Value-oriented investors from North America that have bought into the DACH region more recently, the latter often through David Herro’s Oakmark International Fund.

Top Five institutional sellers in DACH 2022 YTD

Top 5 DACH institutional Sellers_2022

Source: Nasdaq IR Intelligence. Data as of 31/05/2022

Flossbach von Stoch in Cologne has been the top seller of DACH Companies YTD. The firm’s portfolios are dominated by Technology and Consumer Staples companies. Bert Flossbach’s Multiple Opportunities fund is the main portfolio at this firm.

Also in Germany, Allianz Global Investors in Frankfurt has the potential to take significant positions, more than 2% of the ISC in DACH securities, but it has been a seller across the region more recently, trimming across Telco, Technology and Financials.

Meanwhile, the top U.S. seller across the DACH region was core value Causeway Capital in Los Angeles, which invests in European equities primarily via Harold Hartford’s International Value strategy, plus a broad array of institutional clients, mostly U.S. pension funds. The firm has been a seller of Technology, Basic Materials and Consumer Staples.

During more volatile market conditions such as those experienced in the first few months of 2022, aggregate flows have increased, which can present both opportunities and risks for Investor Relations professionals.

Recent fund flows reveal opportunities and risks amongst DACH-invested funds

The amount of investor money moving into and out of investment funds is often a key driver behind buying and selling activity. Investor inflows bolster purchasing power, while redemptions have the opposite effect, reducing equity assets, which leads to forced selling across portfolios. During more volatile market conditions, such as those experienced in the first few months of 2022, aggregate flows have increased, which can present both opportunities and risks for Investor Relations professionals.

Top Actively Managed Funds in DACH_2022

Source: Refinitiv Lipper. Data as of 31/05/2022

The top actively-managed funds invested in DACH countries feature a combination of funds managed from the United States and Germany. Most of these funds have experienced ongoing redemptions in 2022, but others have proved more resilient, notably the Dodge & Cox International Stock Fund, managed by Diana Strandberg, Roger Kuo and team at Dodge & Cox in San Francisco, which has seen inflows of just over a billion dollars so far this year.

Elsewhere, in Boston, some Fidelity funds have seen mixed fortune, including the International Value Fund (Alexander Zavratsky), which experienced redemptions of $1.2bn in 2022. Conversely, the Fidelity International Fund, managed by Wilfred Chilangwa and John Curtin, enjoyed $0.9bn of new client money.

Top active DACH-focused funds by inflows YTD

Top Active DACH Focused Funds_2022

Source: Refinitiv Lipper. Data as of 31/05/2022

Funds that are benefitting from sizeable inflows of new client money may be worth considering from an investor targeting perspective. The above list shows the top DACH focused investment funds by inflows YTD.

The need to fully understand how your investor base is changing over time has never been so important…

The list includes the John Hancock International Strategic Equity Allocation fund, managed by Manulife in Boston, the Bridge Builder International Equity Fund, managed by Mondrian Investment Partners, plus others managed by Artisan Partners in Milwaukee, Fidelity Management & Research in Boston and GQG Partners in Florida.

Recommendations for IR professionals

Considering recent market volatility, it will be necessary for companies in the DACH region to be increasingly agile in their shareholder engagement efforts to manage risks and capitalize on opportunities. Given the ongoing market events, Nasdaq can make the following recommendations for Investor Relations professionals:

  • The need to fully understand how your investor base is changing over time has never been so important. Therefore, it is crucial to ensure you have as much information on shareholder movements to identify selling risks and maximize buying opportunities.
  • During volatile markets, shareholder maintenance should take precedent over development, but the extent to which this should happen depends on several factors including the sector, the extent to which it is subject to outflows of risk-averse capital and inbound interest from investors.
  • Investors are likely to hold several names across the same sector in their portfolios from which they can reduce positions. As such, an understanding of what an investor’s exposure is across the peer group is critical to understanding how to position your company against the competition.
  • Whilst shareholder development may feel like a thankless task during periods of heightened volatility, building a pipeline of prospective investors using an effective investor targeting strategy is important to hit the ground running when markets return to normal.

In this market environment, context is key to effectively position your company to withstand external market factors whilst maximizing opportunities resulting from ongoing rotations of investment capital.

Nasdaq’s Advisory team has extensive experience across the DACH region and a unique set of proprietary tools, providing valuable contextual insight and helping clients connect with new capital flows. For more information on how Nasdaq can help your company with its IR program, please reach out to the team.

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