Ormiston, manager of the Old Mutual Europe (ex UK) Smaller Companies Fund, said not many companies are fazed by the risk posed by a bullish euro to the translation of overseas profits.
The euro has hovered around the $1.20 mark recently, reaching a high of $1.2092 last week, but Ormiston said many European companies in his portfolio are high-end industrial businesses, often market leaders, that can put through price increases to cover transaction exposure.
“No one is particularly worried about translation of overseas profits,” he said. “I met 15 or so Nordic companies recently and nobody is complaining, nobody is talking about hitting margins or losing market share.”
Europe in better shape
Ormiston admitted a EUR/USD level of 1.20 is “not great” but is manageable “in small cap world” which is largely insulated from foreign earnings. Some of the biggest international businesses in Europe on the other hand have had to take small profit downgrades, he said.
He added: “Currencies always overshoot, so what is fair value? We have been there before, but you could argue Europe is in a lot better shape now.
Pain threshold
“Where we would start to see some pain is $1.30-1.40,” he said. “Who knows, the dollar could be close to bottoming with a sentiment cycle around the Trump/Republican agenda.
“If it goes the other way, it gives the ECB more wiggle room and they can then start to remove stimulus.”
Recent additions to Ormiston’s portfolio include Swedish manufacturer Dometic, which produces appliances for the recreational vehicles, marine and auto industries, and the German-listed Italian restaurant chain Vapiano.
