Ollie Beckett (pictured), co-manager of the TR European Growth Trust, believes that with European QE still ongoing, there is significant growth yet to come in the smaller company space.
“Smaller companies are going to see around 18% growth compared to 5-6% in larger companies,” he said.
“About a third of European companies are still down around 50% from 2007. Between 2007 and now, US smaller companies have had 90% earnings growth and UK smallers have had 76%, while continental European have seen 8% earnings growth. Europe has not recovered, and European smaller companies is the one recovery play still out there.
“It is all about earnings momentum. We are at an inflection point; if we look at earnings revisions versus an equal-weighted market, upgrades and growth are as stretched as they have been for a while. If we get more comfortable with the macro environment – and the US and China do not implode – then people will start looking at value again.”
Beckett’s overweights to Germany and the industrial sectors are stand-out features of his portfolio, accounting for 25.3% and 42.1% respectively.
While he concedes that these exposures have not been best served by the recent fall-out from the Volkswagen diesel emissions scandal, in the long-term he believes that it could provide some investment openings.
“We have taken a bit of a hit through our overweight to Germany and industrials, but nothing direct,” he said.
“In the short term, auto-related stock has taken a hit, but I see this as an opportunity. We have been making a few calls in the last couple of days and may look to dive into this area if some opportunities pop up.”
