Europe is facing many challenges, leaving some investors perplexed regarding Europe’s near future. How do you feel about this?
I believe there are some promising opportunities within the region, despite the environment appearing to offer few reasons to be cheerful. Europe is undergoing important transformations in the economic, political, and social fields, with the news, and the political and economic calendar, tending to set the pace and leading to spikes in volatility. However, there are ways to address the market so it becomes less challenging. Investors need to go beyond the headlines and market news, to get deeper into the dynamics which are shaping Europe, and to grasp the multitude of exciting opportunities available.
What type of exciting opportunities are you referring to?
Innovation for example! When you think of innovation, you generally think of the Silicon Valley and the FAANGs(1). Yet, contrary to popular belief, Europe is home to numerous attractive investment opportunities when it comes to innovation: for instance, did you know that Europe has healthily outpaced the US over the past five years in terms of tech flotations(2)? And when we talk about innovation, we don’t only mean technology. Often, tech is the enabler that allows companies to meet the evolving demands of a population and to compete better. Perhaps more than most regions, Europe is multi-faceted, composed of countries which have their individual attributes. This broad backdrop increases the diversity in sectors where innovation is taking hold, offering a great selection of opportunities, from food delivery service Delivery Hero to the ground breaking biotechs such as MorphoSys, as well as the more well-known, such as online music provider Spotify.
You seem convinced of Europe’s potential. How can UK investors benefit from it?
At Carmignac we are convinced of Europe’s potential and we expect to make the most of it for our clients. A suitable solution for UK investors is our high-conviction, low turnover, concentrated European fund ‘FP Carmignac European Leaders’(3). Managed by myself, with the support of the entire Carmignac management team, this equity fund has been launched specifically to meet the needs of UK investors as it invests mainly in large and mid-capitalisation companies in Europe excluding the UK. It aims to achieve capital growth over a minimum of 5 years through a disciplined and socially responsible approach.
Can you tell us more about your investment approach?
I am primarily a bottom-up investor and I select businesses for their individual characteristics and prospects rather than taking a regional top-down view or emphasizing sectors. A simple philosophy underpins my investment approach: selecting companies which can demonstrate high and sustainable profitability, and which are reinvesting profits internally for future growth. Whatever the background, I will always look for companies which can grow under their own steam and are less reliant on a subdued economic background to generate good long-term returns, and Europe has plenty of them! For instance, there are more than 1000 stocks with a capitalization above €1 billion, and many of these are high quality companies which exhibit the characteristics I am looking for.
Can you give us an example of a European name that fits your investment criteria?
Puma is a compelling investment case. Although it is the number three global sports brand, with high brand recognition globally, it lags behind Nike and Adidas with only 2/3% market share. After experiencing success in the early 2000s, Puma then endured a difficult period, with rivals gaining market share in the key running-shoe segment, for instance. However, it has now turned the corner. In the last two and a half years, Puma’s investment in its performance and promoting the brand has borne fruit: over 2018, it reported almost 18% growth in its sales with increasing margins. Moreover, the company is now entering the North American market for basketball products, rejuvenating its women’s range and investing more in its own retail outlets – moves that demonstrate its commitment to future growth.
(1) FAANGs: Facebook, Apple, Amazon, Netflix, Alphabet’s Google (2) Source: Financial Times, Atomico, London Stock Exchange, 01/2019. (3) Recommended minimum investment horizon of the Fund: 5 years. • Risk scale for the A GBP Acc share class: 5. SRRI from the KIID (Key Investor Information Document): scale from 1 (lowest risk) to 7 (highest risk); category-1 risk does not mean a risk-free investment. This indicator may change over time.
Main risks of FP Carmignac European Leaders: EQUITY: The Fund may be affected by stock price variations, the scale of which is dependent on external factors, stock trading volumes or market capitalization. CURRENCY: Currency risk is linked to exposure to a currency other than the Fund’s valuation currency, either through direct investment or the use of forward financial instruments. DISCRETIONARY MANAGEMENT: Anticipations of financial market changes made by the Management Company have a direct effect on the Fund’s performance, which depends on the stocks selected. THE FUND PRESENTS A RISK OF LOSS OF CAPITAL.
Source: Carmignac, 29/05/2019. Important legal information: FP Carmignac ICVC (the “Company”) is an Investment Company with variable capital incorporated in England and Wales under registered number 839620 and is authorised by the Financial Conduct Authority (the “FCA”) with effect from 04/04/2019 and launched on 15/05/2019. FundRock Partners Limited is the Authorised Corporate Director (the “ACD”) of the Company and is authorised and regulated by the Financial Conduct Authority. Registered Office: Second Floor, 52-54 Gracechurch Street, London EC3V 0EH, UK. Carmignac Gestion Luxembourg SA, UK Branch (Registered in England and Wales with number FC031103, CSSF agreement of 10/06/2013) has been appointed as the Investment Manager and distributor in respect of the Company. This document may not be reproduced, in whole or in part, without prior authorisation from the management company. This document does not constitute a subscription offer, nor does it constitute investment advice. Access to the Fund may be subject to restrictions with regard to certain persons or countries. Reference to certain securities and financial instruments is for illustrative purposes to highlight stocks that are or have been included in the portfolios of funds in the Carmignac range. This is not intended to promote direct investment in those instruments, nor does it constitute investment advice. The Management Company is not subject to prohibition on trading in these instruments prior to issuing any communication. The portfolios of Carmignac funds may change without previous notice. The Fund is not registered in North America, in South America, in Asia nor is it registered in Japan. The Fund has not been registered under the US Securities Act of 1933. The Fund may not be offered or sold, directly or indirectly, for the benefit or on behalf of a U.S. person, according to the definition of the US Regulation S and/or FATCA. The Fund presents a risk of loss of capital. The risks and fees are described in the KIID (Key Investor Information Document). The Fund’s prospectus, KIIDs and annual reports are available at www.fundrock.com or upon request to the Investment Manager. The KIID must be made available to the subscriber prior to subscription. This material was prepared by Carmignac Gestion Luxembourg SA and is being distributed in the UK by Carmignac Gestion Luxembourg SA, UK Branch.