With over 17 years of experience, Norman Villamin, the former CIO of the British Monarch’s Bank and current CIO of Europe and Asia at Coutts & Co. discusses his investment strategy and Europe’s sovereign debt crisis.
It’s advice that European economies should take to heart.
When asked how he feels after 19 meetings in two years with no results, Villamin said, “It’s certainly frustrating, and I think [German] Chancellor Merkel is being very firm in saying ‘no’ to Eurobonds until you get fiscal union. The periphery certainly hasn’t moved on that, either. So we think they need to make incremental steps in other areas before they get to something as big as Eurobonds.”
On the subject of the debt crisis of several European countries, Villamin stated, “I think there are some big issues that they need to address and the most pressing is Spain. That’s why we think they need to come out with at the EU Summit this weekend for a banking union within Europe. And that involves things like deposit guarantees, new capital into banks, and the pan-European regulator that they’ve been talking about. “
How does Villamin suggest making money in bonds; corporate over sovereign? “In years to date we have been focusing, for example, on sovereigns. But obviously, yields have fallen to very low levels. We think the right approach now is going to be focusing on income. And that means not only corporate investment grade, but also high-yield debt and dividend orientation in the markets around the world.”
How does Villamin pick stocks that offer the best value? “High dividend is certainly important, but what we’re really looking for is high dividend with very good earnings. What we don’t want is falling earnings to put the dividend at risk. In an environment where you don’t have a lot of growth you have to look for companies that are picking up market share; that are in markets that are growing as a share of the consumer wallet. Bottom-up approaches are going to be very important in this market.”
Is Villamin surprised by the recent failing earnings? “We’re not that surprised… what we’re seeing are very good margins. In particular, in the U.S. As we look forward in the second half of the year, falling oil prices and contained labor costs should keep the margin picture fairly robust and underpin earnings in the U.S. in particular.”
Should people look to Asia for investments rather than within the Western markets? “When we look at our portfolios right now; portfolios that are very Western-focused, obviously, we’ll suffer from problems of growth. So we look to Asia, and more broadly, the emerging markets… for a bit more growth and a bit more return in some of our higher-risk portfolios.”
Villamin compares the current European crisis to the Asian crisis back in the 1990s and says economies should learn a lesson from past failures. “It’s actually very similar. You had a situation that began with irresponsible lending from banks into non-productive assets. That lending has since disappeared and there was a ‘bursting of the bubble.’ Then it’s a question of repairing it. If viewers remember Asia, it requires new capital in the banks, restructuring some of that debt, and to be honest, probably a much weaker currency than we see currently in Europe.”