Nils Bosse Parra, fund manager ODDO BHF Polaris Dynamic

WITH A VIEW TO THE FUTURE

In this Fund Insight, we take a look at the current market environment. After the stock markets began to recover in the summer, investors must expect more volatility again in the coming months. In such an environment, a clear focus on quality stocks is recommended. In the funds of the ODDO BHF Polaris Family, we measure quality according to five criteria, which we use to select companies for the portfolio. The companies should:

• be capital-efficient and profitable in the long term;
• have competitive advantages that are difficult to overcome (economic "moats");
• participate in a structural growth trend;
• meet our sustainability criteria
• and be available at a reasonable valuation (high free cash flowyield).

We remain convinced that the companies in which we invest offer products and services that cannot be easily copied by competitors. Companies with stable and high returns on capital, which can be acquired at a reasonable price, represent high added value for investors in the medium term. The success of quality companies often results from a strong brand with pricing power and/or an oligopolistic market with high barriers to entry. Success leads to high cash flows that can be returned to shareholders. This financial strength, along with low debt, offers investors protection in times of inflation and crisis. Quality companies can often generate a high return on capital employed over the economic cycle and raise the prices of their products or services in times of inflation.

WITH A VIEW ON THE MARKET - EXAMPLE

An example of such a quality company is Wolters Kluwer *, a leading global provider of information, software and services to professional clients. The information services provider is active in more than 180 countries and has stable, double-digit returns on capital. The competitive advantages are on the one hand the high costs of switching and on the other hand a unique data base in the four segments Health, Tax & Accounting, Governance, Risk & Compliance and Legal & Regulatory. The structural growth and higher operating margins each year come from the trend towards digitisation of data.

Reckitt Benckiser *, a manufacturer of essential consumer products, is also able to keep sales stable in an adverse environment. The company is known for detergents and cleaning products such as Vanish, finish and Sagrotan, but also painkillers such as Nurofen, Gaviscon or Dobendan. Reckitt Benckiser * is very successful in compensating for higher costs by raising prices.With the half-year figures, both the sales and profit margin outlook could be raised significantly.

With high gross margins of over seventy percent, Synopsys * is also convincing. The company benefits from long-term trends in chip design such as 5G, Internet of Things and AI (artificial intelligence). These trends should increase demand for electronic design automation tools and support Synopsys *'s growth.

High switching costs lead to customer loyalty. The increasing complexity of chip designs and the ongoing digitisation of various end markets are growth drivers for the company. The barriers to entry in this growth industry are high, as incumbents have decades of design expertise and years of consolidation have created an oligopoly, namely Synopsys *, Cadence* and Mentor* (a Siemens * company). Of these, only Synopsys * and Cadence* offer full automation of the chip design process. The growth drivers are structural in nature and can be seen in the research and development spending of the semiconductor companies.