Well, I guess a whole bunch of things have been impacting broader performance in European equities. At the beginning of the year, the steep and sudden rise in bond yields caused the market to correct and also rotate initially quite aggressively. We saw stocks that had been quite robust for a considerable period of time reverse sharply and vice versa.

So, this also manifests itself in a star rotation, so growth started to underperform, selling off with value jumping sharply, as well. In essence, a reversal trade. These kinds of distortions and dislocations are more likely when bond yields move very quickly one way or t’other.

So clearly, inflation pressures have also shaped the market, although this isn’t necessarily coming through in the underlying results in businesses yet. We saw an upwards retracement in the European market from the decline, around 50% retracement upwards through March. And this was despite what was going on in Ukraine and that starting.

So on a global basis, the proximity of the events in Ukraine to Europe has caused the region to bounce not quite as aggressively as the rest of the world. But notwithstanding that, on the way down over January and February, Europe held up relatively better because it’s more value biased and has more value credentials than the U.S. market.

Well, when we look at the underlying businesses within the region, we continue to see robust trading and good operational momentum. So the pullback in the market has actually been a sharp de-rating as earnings have continued to go upwards, but valuations have come down.

So we’re relatively optimistic on the set-up of the corporate level for European equities. Now, at the macro level, we still expect decent GDP growth, but the energy, commodity, and geopolitical forces at work could move these expectations one way or the other. And this is something that’s very hard to predict.

Inflation pressures coupled with slowing growth are the big risk, as the work of central banks becomes that much harder and far less straightforward than it has been for the last decade or so. But we need to remember the stock market is not the economy, and as such, we need to continue to focus on the corporate level as to these dynamics, and this is where we have greater insights, much higher levels of conviction and much more—we can look into the forward trends with much more certainty.

Well, what we’re focused on is what we’re always focused on. Investing in great businesses that generate higher stable returns on their invested capital. These businesses are typically asset light, so it doesn’t cost a lot to grow. Businesses with these characteristics can reinvest in themselves year after year after year, earning the underlying return on the business and this compounds shareholder value very attractively over a long period of time. These businesses typically would have strong competitive positions, pricing power, good management teams with moats around the franchise. And this applies in normal times as well as times of dislocation as we’re seeing right now. In times of these sort of turmoil, stronger business models tend to perform better simply because they’re able to secure supply chains, pass on prices, continuing to invest in themselves.

So the strong always tend to get stronger. So ultimately our investment philosophy doesn’t really change. We overlay portfolio engineering to monitor our exposures and we have moved the portfolios more balanced sectorally over the past six months, so trying to sort of minimize risk to factors and styles or industries that we don’t want to—or close gaps where we see them.

But in essence, it’s business as usual. But we can change the risk profile of a portfolio just using the weightings of the existing names.

Well, I think so far they’ve impacted equity markets more so than the corporates themselves. And at the moment the corporates are coping. Ultimately, we do see positive correlations with margins and inflation over time. So actually this is kind of counterintuitive.

However, we do need to monitor. If we see inflation that’s persistent and high enough for long enough, then we could ultimately see demand destruction. And obviously that would be an issue. Supply chain constraints have been easing a little in certain areas, but even in the past month or so—the lockdown we’ve seen in Shanghai, for instance. So we’re still seeing these sort of mini-issues popping up that are disrupting supply chains, albeit for a few weeks or for a few days, but it’s still happening.

So at the corporate level, this has led to a reappraisal of many firms on the number of suppliers, the geographical distribution of suppliers, how much inventory to hold over a period of time. And these come at a cost. So, it actually means that the highest quality firms can improve and increase their moats because they’re more resilient as they can afford to do these things, whereas it’s something that lower-quality, lower-return businesses can’t do, and hence see their competitiveness decline.

So what we want to do is invest in the businesses with pricing power. That’s very important in this sort of phase of the market. They’re capital light, and have large competitive moats, and the known unknowns of inflation, disruption can be tackled with much more versatility over time.

Well, the way we work, I guess, is very bottom up. So it’s looking at the companies that build up into the industries and the markets as a whole. So we never really look at opportunities on an industry or a country level, per se. But notwithstanding that, there certainly are some interesting dynamics in a couple of different areas.

So for instance, the UK. The UK has been a very poor market relative for a long period of time, particularly post the Brexit vote in 2016. And we saw relative valuations plummet, along with the currency, for a number of years. Now, actually since we’ve had more resolution on Brexit deals as of the beginning of last year, we’ve seen, well, a degree of clarity or a lack of opaqueness that’s been removed from the picture in the UK.

And given the relative valuations at trough levels, we’re actually seeing the UK providing some really interesting opportunities at some attractive valuations. Now part of that is also to do with the makeup of the UK market. There’s a lot of resources involved in the UK, but that’s been a certain area that’s the trough valuations, but is starting to see some good operational momentum.

On an industry perspective, again, we don’t look at these at an industry level, but clearly things like the energy sector, and oils in particular, we’ve seen the sector effectively shunned over a number of years. It could be ESG. It could be the level of indebtedness, the underlying commodity price. There’s been lots of reasons, but ultimately we’ve seen a sector that’s moving away from its core capital investments within carbon, moving away to renewables.

But in essence, we’re seeing a much more free cash flow generative sector, particularly on the oil price where it is now. And we’re still at very, very low valuations. Now, we’re seeing free cash flow yields in the mid-teens, almost nearly 20%, with huge dividend yields.

Now, as an industry and individual companies, they’re still very asset heavy. There’s still a lot of moving parts that are very difficult to predict. But ultimately, when you’re seeing 15%, 16%, 17% free cash flow yields, when oil is above $100 and the cash cost of a barrel of oil is somewhere below $30, then there’re really interesting opportunities there.

Now, for the long term, I wouldn’t expect to see oil as a big overweight in any portfolio that we run. But clearly we have to be pragmatic when it comes to portfolio construction and to look at all the opportunities, and especially when we start to see operational momentum coupled with valuations at trough levels, then these are the kind of things we might find interesting.

Well, clearly between the U.S. and Europe there’s a big difference in the construction of the market. The U.S. is very tech heavy, more growth oriented. The European markets, there’s a lot more financials, for instance, and that’s the biggest difference, which is kind of value oriented.

So, in essence, there is a degree of value-growth in the U.S. trade. Now, notwithstanding that, the makeup of the aggregate indices within Europe is always changing. There’s more tech coming in. There are more tech companies that are coming to the market that are growing. So the sort of the makeup of the market shifts over time. So in the short to medium term, one would say a more value-oriented market or a maybe sort of anti-growth market. So you get a depression or a contraction in PE multiples would be favourable to Europe over the U.S. But in essence you’re looking at a technology versus financials trade when you compare the two.

But what we have to remember as investors in Europe ourselves, we don’t have to invest in the lower-quality businesses. So, in essence, I am saying Europe is a lower ROE universe than the U.S. for instance. So it is a lower-quality universe. But, however, in our job, we can invest in the basket of stocks that are higher returns and look more like the U.S. equity market.

So, in essence, we don’t like to think of things on U.S. versus Europe because actually we’re looking at a subsector of stocks within Europe that look a lot more like the U.S. market than the aggregate Europe level. But if we were to look at Europe at a headline level versus the U.S., it really is—it always sees that growth and value trade, a little bit like what we saw in the first two months of this year. Europe held up a lot better in the pullback in the markets because there’s more value because there was more financials and they responded quite well to rising interest rates. But that would be the key dynamic, I would say, over the medium term.