5 July 2019

The worsening of the trade war between the United States and China at the beginning of May has again changed the general context, also requiring specialized managers on Piazza Affari to implement changes to the portfolio. Massimo Trabattoni, Head of Italian Equity, for its part, has adopted a more defensive strategy, reducing the weight in the securities directly impacted by the Trade War and also in the bank stocks that would suffer from a tightening of the Italy situation, preferring instead high quality titles, possibly not domestic.

“We focus on realities with important growth potentials and, at the same time, they are not excessively exposed to trade wars”, explains the manager and he adds: “This is a painstaking work, which requires in-depth analysis and cross-analysis, which inevitably leads to examine companies on a case-by-case basis precisely to identify that can satisfy these stringent criteria”.

An approach that obviously cannot be followed by do-it-yourself investors or even by improvised managers, but which must be entrusted to experienced professionals, with a deep knowledge of the Italian stock market and, above all, who can guarantee a systematic method of analysis and investment.

Returning to Piazza Affari, the market is increasingly polarizing between two extremes. On the one hand there are sectors and companies deemed “safe”, characterized by growth – perhaps even not exciting but constant – capital strength and good dividends. On the other hand, there are sectors and companies under pressure due to different aspects that affect future expectations. In the first group there are many companies belong to utility and health care sector, while in the second group there are, above all, banks and the automotive sector. The “safe” companies are rewarded with sustained multiples and therefore they have a high price/earning ratio, while the latter are penalized with stock valuations at minimum terms.

The automotive sector is perhaps the most striking example among those under pressure. On the one hand it suffers the preferences of the new generations, less inclined to have the car owned because which they prefer car sharing and public transport. Secondly, the advent and the spread of electric motors disrupt the entry barriers, allowing new players to enter the mobility market, while the long-term investments of the historic car companies are still to be amortized.

“Our job is to try to avoid companies that are considered solid, but that can disregard expectations and end up in the second group, severely penalized by the market. At the same time, we are looking for companies in the second group that could instead surprise expectations and return to higher multiples, with significant price revaluation “, points out Trabattoni.

In any case, the manager prefers to proceed in a gradual and targeted manner, favoring sectoral issues in the context of large caps and the search for individual stories, especially in the mid and small caps. “We remain convinced that the greatest buying opportunities are in the world of small caps, where it is still possible to find companies with excellent growth potential, characterized by interesting valuations: at the moment, in fact, foreign investors, who have divested in the 2018 correction, don’t come back again and in the event of a market rebound they will be ready to re-enter. If, on the contrary, the markets should retreat, the small and mid caps should suffer less than the large cap basket” he concludes.

Interview with Massimo Trabattoni, Head of Italian Equity.