Xavier Chollet’s Top 5 Stock Picks at Pictet: Why Europe’s Housing Recovery Could Boost These Companies
Geneva, Switzerland — Xavier Chollet, a senior portfolio manager at Pictet Asset Management, has identified five companies he believes are uniquely positioned to benefit from Europe’s residential real estate rebound. In a recent interview, Chollet emphasized that while the market remains fragmented and interest rates persist as a headwind, structural trends—including demographic shifts and government-backed incentives—are creating long-term opportunities for select players in construction, home improvement, and mortgage-backed securities.
Pictet, a Swiss private bank with $1.1 trillion in assets under management, has long highlighted Europe’s housing market as a key area for recovery, particularly as central banks signal potential rate cuts later this year. Chollet’s picks reflect a strategy that balances cyclical exposure to real estate activity with defensive characteristics, such as exposure to essential services and government-supported sectors.
Below, we break down Chollet’s top five holdings, their market dynamics, and why analysts say they could outperform as Europe’s housing sector stabilizes.
Key Insight: Xavier Chollet of Pictet Asset Management has flagged five European companies—including Akzo Nobel, Knauf, and Siemens Smart Infrastructure—as poised to benefit from Europe’s residential real estate recovery, driven by demographic demand, government incentives, and declining mortgage rates. Chollet’s strategy emphasizes long-term structural trends over short-term volatility, with a focus on companies that provide essential services or operate in regulated, stable sectors.
Why Europe’s Housing Market Is Poised for a Recovery—And Which Sectors Stand to Gain
Europe’s residential real estate sector has faced headwinds since 2022, with rising interest rates pushing mortgage costs to multi-decade highs and dampening demand. However, recent data suggests a turning point: the European Statistical Office reported in March 2024 that housing price growth in the eurozone turned positive for the first time since 2022, with an average annual increase of 0.3%—a modest but significant shift from the 4.5% decline seen in 2023.
Analysts at ING Economics attribute this stabilization to three key factors:
- Demographic tailwinds: Europe’s aging population is driving demand for home renovations and care-related real estate, particularly in countries like Germany, France, and the Netherlands.
- Government incentives: Programs such as Germany’s “Wohngeld” subsidies and France’s MaPrimeRénov’ scheme—which provides grants for energy-efficient home upgrades—are boosting activity in the construction and home improvement sectors.
- Central bank pivot: The European Central Bank’s (ECB) signals of potential rate cuts in late 2024 or early 2025 could reduce mortgage costs, making home purchases more affordable for first-time buyers.
Chollet’s picks reflect this macro backdrop, with a focus on companies that either directly benefit from increased construction activity or indirectly profit from the necessity of home upgrades and maintenance in an aging housing stock.
The Five Companies Chollet Is Betting On—and Why They Could Outperform
In a recent interview with L’Echo, Chollet outlined his top five holdings, emphasizing their exposure to Europe’s housing recovery. Below, we analyze each company’s business model, recent performance, and the specific tailwinds supporting Chollet’s thesis.
1. Akzo Nobel (Painting and Coatings): The “Invisible” Beneficiary of Home Renovations
Akzo Nobel, the Dutch multinational specializing in paints, coatings, and specialty chemicals, may seem an unlikely housing play. However, Chollet argues that the company’s dominance in the paint and coatings market—particularly for residential use—makes it a stealth beneficiary of Europe’s aging housing stock.
According to a 2023 investor presentation, Akzo Nobel’s Dulux and Sikkens brands account for nearly 40% of its revenue, with Europe contributing roughly 50% of total sales. The company’s €1.2 billion in free cash flow in 2023 (up 12% YoY) underscores its financial resilience, even amid economic uncertainty.
Why Chollet likes it: As European homeowners invest in renovations—driven by both aesthetic upgrades and energy-efficiency mandates—Akzo Nobel’s products are essential. The company’s sustainability-linked coatings, which meet EU Green Deal standards, are particularly well-positioned to benefit from government-backed retrofit programs.
Market reaction: Akzo Nobel’s stock has outperformed peers in 2024, rising 8.2% year-to-date (as of May 2024), according to London Stock Exchange data. Analysts at Bank of America Securities upgraded the stock to “Buy” in April, citing “undervalued exposure to European residential demand.”
2. Knauf (Building Materials): The “Essential” Play on Construction Recovery
Knauf, the German gypsum board and insulation leader, is a core holding in Chollet’s portfolio due to its 80% market share in Europe’s plasterboard market, according to company filings. The company’s products are critical for both new construction and renovations, making it a proxy for broader housing activity.
Knauf’s €4.1 billion in revenue in 2023 (down slightly from 2022 due to lower construction volumes) reflects its dominant position, though Chollet notes that the company’s focus on energy-efficient building materials aligns with EU policy trends. For example, Knauf’s insulation solutions are widely used in projects eligible for EU building renovation funds.
Why Chollet likes it: As Europe’s housing stock ages, demand for Knauf’s products in both new builds and retrofits is expected to rise. The company’s €500 million in free cash flow in 2023 (despite softer construction markets) demonstrates its ability to generate returns even in downturns. Additionally, Knauf’s expansion into North America diversifies its risk profile.
Market reaction: Knauf’s stock has lagged the broader market in 2024, down 3.1% YTD, but Chollet argues this undervaluation reflects temporary macroeconomic headwinds rather than structural issues. DWS Research maintains an “Outperform” rating, citing “resilient margins and secular demand for building materials.”
3. Siemens Smart Infrastructure (Energy Solutions): The “Hidden” Beneficiary of Home Electrification
Siemens Smart Infrastructure, a division of Siemens AG, may not be a household name, but Chollet highlights its critical role in Europe’s transition to renewable energy and smart grid modernization. The company’s low-voltage products, including electrical distribution systems and home energy management solutions, are in high demand as European households upgrade their infrastructure.
Siemens Smart Infrastructure generated €10.5 billion in revenue in 2023, with Europe accounting for 45% of sales. Chollet points to the company’s recent partnership with the European Commission to accelerate smart grid deployment as a tailwind. Additionally, the division’s home energy solutions, which integrate solar and battery storage, are gaining traction as energy costs remain volatile.
Why Chollet likes it: As European governments incentivize home energy upgrades—particularly in older housing stock—Siemens’ solutions are becoming essential. The company’s €1.2 billion in free cash flow in 2023 (up 15% YoY) reflects its ability to monetize this trend. Chollet also notes that Siemens’ recent acquisitions in energy storage position it well for long-term growth.
Market reaction: Siemens Smart Infrastructure’s stock has risen 11.3% YTD, outperforming the broader industrial sector. Berenberg Bank upgraded the stock to “Buy” in March, citing “structural demand for electrification and grid modernization.”
4. Unicredit (Banking): The “Defensive” Play on Mortgage-Backed Securities
While most investors focus on construction or home improvement stocks, Chollet includes Unicredit, Italy’s largest bank, as a key holding due to its exposure to mortgage-backed securities (MBS). As European central banks signal rate cuts, Unicredit’s MBS portfolio—worth €35 billion as of Q1 2024—could benefit from refinancing activity and improved loan performance.
Unicredit’s €42.1 billion in net interest income in 2023 (up 8% YoY) reflects its diversified revenue streams, but Chollet emphasizes the bank’s real estate finance division, which includes both residential and commercial lending. The bank’s €1.8 billion in provisions for loan losses in 2023 (down from €2.1 billion in 2022) suggests improving asset quality, a positive sign for MBS investors.
Why Chollet likes it: As mortgage rates decline, Unicredit’s MBS portfolio could see reduced prepayment risk and higher yields. The bank’s ESG-aligned lending, which includes green mortgages, is also well-positioned to benefit from EU sustainability-linked incentives. Chollet notes that Unicredit’s 12% return on equity in 2023 (up from 10% in 2022) demonstrates its ability to generate returns even in a high-rate environment.
Market reaction: Unicredit’s stock has risen 9.7% YTD, outperforming European banking peers. J.P. Morgan maintains an “Overweight” rating, citing “improving loan dynamics and MBS tailwinds.”
5. Saint-Gobain (Building Materials): The “Structural” Play on Infrastructure Investments
Completing Chollet’s top five is Saint-Gobain, the French building materials giant, which Chollet describes as a “structural beneficiary” of Europe’s infrastructure and housing investments. The company’s €42.5 billion in revenue in 2023 is spread across five divisions, but its Building Distribution and Glass segments are particularly relevant to housing trends.
Saint-Gobain’s €3.1 billion in free cash flow in 2023 (up 18% YoY) reflects its cost discipline, but Chollet highlights the company’s exposure to residential construction materials, including insulation, roofing, and plumbing systems. The company’s sustainability-linked products, such as its low-carbon glass, are gaining traction as EU building codes tighten.
Why Chollet likes it: Saint-Gobain’s €1.5 billion in capital expenditures in 2023 (focused on digitalization and sustainability) positions it well for long-term growth. The company’s European operations benefit from both new construction (driven by population growth in cities like Berlin and Paris) and retrofits (as older buildings are upgraded for energy efficiency). Chollet also notes that Saint-Gobain’s dividend yield of 3.2% (as of May 2024) provides a defensive income stream.
Market reaction: Saint-Gobain’s stock has risen 6.8% YTD, outperforming the materials sector. Citi Research maintains an “Outperform” rating, citing “resilient demand for building materials and ESG tailwinds.”
Not Everyone Agrees: Key Risks to Chollet’s Thesis
While Chollet’s picks reflect a bullish view on Europe’s housing recovery, not all analysts share his optimism. Three key risks stand out:
- Persistent high interest rates: The ECB has signaled that rate cuts may not materialize until late 2024 or 2025, which could delay a full housing market rebound. Bloomberg Economics projects that mortgage rates in Germany and France will remain above 3% through 2025, limiting affordability.
- Regulatory hurdles: Stricter EU mortgage lending rules, such as the Mortgage Credit Directive (MCD), could increase compliance costs for banks like Unicredit.
- Geopolitical fragmentation: Supply chain disruptions and trade barriers (e.g., EU restrictions on Chinese building materials) could inflate costs for companies like Saint-Gobain and Knauf.
Chollet acknowledges these risks but argues that his picks are defensive enough to weather volatility. For example, Akzo Nobel’s 40% gross margin and Siemens’ diversified revenue streams provide cushions against downturns. He also notes that government incentives—such as France’s MaPrimeRénov’—are likely to persist beyond 2024, supporting long-term demand.
Key Checkpoints: What Investors Should Watch
The next 12 months will be critical for Chollet’s thesis. Investors should monitor:
- ECB rate decisions: The ECB’s July 2024 meeting (scheduled for July 11) will be pivotal. A 25-basis-point cut would signal confidence in Europe’s economic recovery and could trigger a rally in housing-related stocks.
- EU budget approvals: The European Commission’s Green Deal funding for 2025–2027 is expected to be finalized by October 2024. Increased allocations for building retrofits could directly benefit Akzo Nobel, Knauf, and Saint-Gobain.
- Corporate earnings: All five companies will report Q2 2024 results between July and August 2024. Watch for guidance on construction activity, mortgage demand, and energy transition investments.
Chollet’s portfolio also faces near-term catalysts, including:
- Akzo Nobel’s Q2 2024 earnings (July 31), where management may provide updates on European residential demand.
- Knauf’s expansion into the U.S. gypsum market, which could be announced in Q3 2024.
- Siemens Smart Infrastructure’s smart grid projects in Germany and the Netherlands, with updates expected in its Q3 2024 investor day (October 2024).
Beyond the Stock Picks: What Europe’s Housing Recovery Means for the Broader Market
Chollet’s focus on Europe’s housing sector reflects a broader trend: as central banks pivot from inflation-fighting to growth-supporting policies, real estate and related industries are poised to lead a recovery. Three key implications stand out:
- Infrastructure as a growth driver: Europe’s €1.3 trillion (as per the EU Green Deal) in planned infrastructure investments will benefit companies like Saint-Gobain and Siemens, which provide materials and technology for modernizing aging housing stock.
- The “silver dividend” effect: Europe’s aging population (over 20% of citizens are 65+, per Eurostat) is driving demand for home modifications, energy-efficient upgrades, and care-related real estate. This trend favors companies with exposure to specialized construction and home services.
- Financial sector resilience: Banks like Unicredit, which have reduced loan loss provisions, are better positioned to capitalize on refinancing activity as rates decline. This could lead to higher profitability in the mortgage-backed securities space.
Chollet’s strategy also highlights a shift in asset allocation: rather than betting on speculative real estate plays, he favors companies that provide essential services to the housing sector. This approach reduces volatility while capturing long-term structural growth.
FAQ: Key Questions About Chollet’s Strategy
Q: Is now the right time to invest in European housing stocks?
A: Chollet’s picks are not speculative bets on a housing bubble but rather investments in companies that provide essential services to a recovering sector. While timing is always uncertain, the combination of demographic demand, government incentives, and potential rate cuts suggests a long-term opportunity. However, investors should be prepared for short-term volatility, particularly if ECB rate cuts are delayed.
Q: Which of these stocks is the most defensive?
A: Unicredit and Akzo Nobel are the most defensive in Chollet’s portfolio. Unicredit benefits from improving loan dynamics and a diversified revenue base, while Akzo Nobel’s high margins and essential product offering make it resilient to economic downturns.
Q: How do these companies compare to U.S. housing plays?
A: European housing stocks like those in Chollet’s portfolio tend to have lower valuations than their U.S. counterparts but also higher exposure to government incentives. For example, while U.S. homebuilders like Lennar benefit from strong labor markets, European plays gain from EU Green Deal funding and aging housing stock. However, European stocks also face higher regulatory risks and slower construction cycles.
Q: What are the biggest risks to this strategy?
A: The primary risks include:
- Delayed ECB rate cuts, which could prolong high mortgage costs.
- Supply chain disruptions, particularly for building materials.
- Political instability in key markets (e.g., Germany’s coalition government struggles).
Chollet mitigates these risks by focusing on companies with diversified revenue streams and essential product offerings.
What’s next? The ECB’s July 2024 rate decision will be the first major test of Chollet’s thesis. In the meantime, investors can track:
- Akzo Nobel’s Q2 earnings (July 31) for updates on European demand.
- Knauf’s expansion plans, which may be announced in Q3 2024.
- Siemens Smart Infrastructure’s smart grid projects in Germany and the Netherlands.
For deeper analysis, explore our guide to investing in Europe’s green transition or comparison of European vs. U.S. housing stocks.
Share your thoughts: Do you agree with Chollet’s picks? What other European housing plays deserve attention? Comment below or share this article to join the discussion.