27 January 2020

Probably not everybody is aware that from 2013 Assogestioni has adopted the Italian Stewardship Principles for exercise administrative and voting rights in listed companies. The goal is to provide a series of high-level best practices that can stimulate dialogue and collaboration between asset-management companies and the listed issuers in which they invest. Adoption of these principles has allowed Italy to place itself amongst the pioneers of international best practices, prior to formal recognition with entry of the Shareholder Rights Directive II (SHRD II). Let’s explore this topic in more detail with Massimo Trabattoni, Head of Italian Equity.

So what are the advantages for managers of this initiative launched by Assogestioni?

Rather than immediate advantages we will see that year by year the legislative framework is capable of supporting a more transparent and reliable view of individual businesses. Over the years, thanks to the invaluable contribution of professionals at Assogestioni assigned to this task, it has been possible to place independent experts on the BoDs of listed companies who have specific profiles in the fields of accounting, business and governance, and who are capable of guaranteeing the highest quality standards. Adoption of such standards still varies from company to company, as does implementation of ESG criteria, with different consequences for the business. The luxury sector, for example, one of the most important for the Italian stock exchange, is amongst the first to have aligned with ESG standards.

In terms of sectors, we have seen that since September the best performance has come from cyclicals and value stocks. What is the reason for this inversion in a trend that had continued for numerous quarters?

In the first few months of the year, quotations and the relative valuations for the growth segment were perhaps exaggerated in their increase and this supported revaluation of cyclicals and value stocks, those stock segments that had suffered from a lack of growth in earnings, if not a decrease in profits. Furthermore, the positions taken, also from authoritative figures (such as Christine Lagarde, President of the European Central Bank, ed.) on the need to push fiscal policy to promote growth, supported expectations for cyclicals and value sectors.

What should we expect for 2020?

In the first part of the year, cyclicals and value stocks will probably be the focus also due support from the introduction or even just the announcement of fiscal policies. Meanwhile in the second half, the growth segment may stand out, above all if expected earnings are backed up by actual financial figures. The ideal solution for correct portfolio allocation could be found in the right mix of the various market components: cyclicals, value and growth stocks, through stock picking that should make the difference at a portfolio level.

Is this a valid solution also for the Italian stock exchange, where some await the effects of the new law on PIRs?

The ability to select the right companies is fundamental, above all on the Italian market. Specifically, one of our priorities is identifying smaller companies with valid business models focused on international markets that have difficulty receiving finance from banks. If able to benefit from direct financial flows from investors, they may make the leap in quality required to significantly increase medium/long-term valuations.

Interview with Massimo Trabattoni, Head of Italian Equity.