Advisers and investors may ask themselves whether there are good reasons to consider Europe for investing. We would argue that if you know where to look, there is much to be optimistic about. Every region, in every environment, has great companies that are well-placed to endure. Europe is no different.
Is Europe worth looking at?
Amid global challenges (trade wars, geopolitical struggles, Brexit) it’s not surprising that many are uncertain about investing in Europe. But fortune favours the brave – and those who have the capabilities to unearth the region’s potential. Mark Denham, Head of European Equities and Fund Manager of FP Carmignac European Leaders, explains why investors should look closer at Europe’s opportunities.
Watch Mark Denham talk about Europe's potential in all environments
How we look at Europe
Europe has around 1,500 stocks, many of which are high quality companies. But for Mark, the real gems – those with truly attractive long-term potential – must exhibit high sustainable profitability, continuous reinvestment in their own growth, and strong social responsibility credentials.
FROM THE BOTTOM UP: When we look at Europe, we need the tenacity to overcome distractions and see clearly. Rather than being distracted by market noise, relying on cyclical tailwinds, or taking a view on growth figures, interest rate, or currency movements, Mark uses a bottom-up approach to focus on secular opportunities – the firms which can grow under their own steam, irrespective of the macroeconomic environment.
WITH A LONG-TERM VISION: The attributes which affect markets are typically short term, but great companies are defined by their long-term promise. Over the short term, stock prices can go up or down for a variety of reasons, but over a long period of time ultimately a stock price will always reflect how well or badly the underlying company has done. This is why Mark focuses on companies with attractive long-term growth prospects.
THE POWER OF REINVESTMENT: For Mark, companies must not only have a high and sustainable return on their existing business but also go one step further by reinvesting these cash flows for the future. As a result, they grow their capital base while keeping that superior profit – leading to a compounding effect in the intrinsic value of the business over the long term.
By following this approach, Mark builds a concentrated, low turnover portfolio consisting of handpicked, high-conviction names.
Europe is worth another look – make sure your investment partner has the right vision.