Stock markets are capricious in the short-term. Unexpected news flow and temporary factors can trigger bursts of share-price volatility, but leave the long-term fundamentals of companies intact. This is illustrated well by the performance of Pandora, ConvaTec, Nokia and Siemens Gamesa in the last year. While European equities rebounded strongly in the past 12 months as the region’s economic recovery deepened, these four stocks faltered. James Rutherford, Portfolio Manager and Martin Todd, Co-Manager, Hermes European Alpha, at Hermes Investment Management explain why they decided to retain – or add to – these positions and maintain focus on the companies’ prospects for long-term growth.
“We aim to not be driven by emotion, but instead examine adverse issues influencing a company’s performance. We seek to understand the nature of these issues – for example, whether they are structural or temporary – and whether we can see a clear road to recovery. This requires discipline and patience, and ultimately helps us look beyond short-term turbulence and keep an evidence-based faith in the ability of our holdings to outperform.”