Investment Tour de Europe

If I told you that I was writing this week’s article whilst cycling on an exercise bike, you probably wouldn’t believe me. But it’s true! During July and August my husband and I are endeavouring to cycle a total of 4,000 miles to raise money for charity.

I’m not a Tour de France fan. In fact, I’ve never watched it. But I have a new-found respect for those athletes. For reference, the Tour de France is 2,122 miles and completed in 21 days – an average of 101 miles a day. My goal is only 30 miles a day.

Our virtual cycle is taking us through 12 countries, from London to Bahrain. By the end of July we’ll be half-way through and ‘in’ Istanbul. So I thought I’d look at what investment opportunities lie off the beaten track between the UK and Turkey.

“It never gets easier, you just go faster.” — Greg LeMond, three times Tour de France champion

France: 124 miles

“Saint-Gobain and Danone are both prime examples of a key facet of our philosophy and process: we love change in management, especially in formerly serial underachievers,” said John Bennett, manager of Janus Henderson European Selected Opportunities.

He continued, “Building materials company Saint-Gobain is a key beneficiary of the EU Renovation Stimulus and the current management team are improving operational performance with greater focus on profitability and cash generation than historically. Danone is reducing costs and reshaping the company to benefit from the strong growth in plant-based products.”

Mark Nichols, manager of Jupiter European says one of the pushbacks to investing in France is usually that “it remains an uncompetitive economic environment in which to operate given strict employment laws and anaemic demographic growth.”

But he argues that demand for the high-end luxury goods we often associate with France is global, meaning abundant demand-led growth from North American, Asian and European consumers alike. “The result is a collection of French businesses, such as Pernod Ricard or LVMH, with attractive products, strong pricing power and a global growth proposition,” he said. “All of that before we mention the innovative industrial software business, Dassault Systemes.” Loire Valley, it seems, can compete with Silicon Valley…

Belgium: 161 miles

Jon Cheigh, chief investment officer at Cohen & Steers, says that you might expect Brussels to be a prime target for office real estate investments as it would have a ‘captive’ base of EU workers. But actually, that’s never been the case because it’s a developer-friendly market so there is a lot of competition, and this is deflationary for rents. Care homes are more interesting investment in his view as it’s a growing market.

While the number of listed companies remains small in Belgium there are still attractive opportunities and BMO European Real Estate Securities has an 8.7%* weighting to firms there.

Recently on the Investing on the go podcast: why European real estate funds have performed so well in 2021

Germany: 333 miles

For two decades, Seimens failed to meet Chris Garsten’s ‘five attributes for a wealth-creating growth company’. “Numerous operating companies made earnings visibility poor,” commented the co-manager of Waverton European Capital Growth. “Today, however, it is down from 10 fully-owned divisions to three, plus a 75% stake in Siemens Heathineers. We believe that Siemens is moving from going nowhere very fast to being a great long-term investment. A little-known fact is that within the biggest division, Digital Industries, Siemens has the world’s tenth largest software company.”

Austria: 775 miles

Richard Pease, co-manager of TM CRUX European Special Situations, said: “Austria possesses the world’s youngest head of government, 34-year-old Chancellor Sebastian Kurz, but its Wiener Börse is dominated by ‘old-school’ businesses. Nevertheless, there are pockets of entrepreneurialism in Austria such as Bawag.”

“Unlike in neighbouring Germany, over the years we have not unearthed that many opportunities in Austria,” agreed Ben Griffiths, manager of T. Rowe Price European Smaller Companies Equity. “We have had typically either zero or just one holding since the fund’s inception in 2008. However, we currently have two! One is Bawag, our only traditional European bank holding. The other is Mayr-Melnhof Karton, bought earlier this year. It’s a cartonboard packaging company. As with Bawag, underlying market growth is modest but environmentally-driven plastics replacement trends and a desire for further consolidation should see an acceleration over the coming years.”

Eastern Europe: Hungary, Serbia and Bulgaria: 987 miles

Finding managers with allocations to companies in these three countries proved more difficult, especially with a limited number of listed companies. M&G Emerging Markets Bond fund and M&G Global Macro Bond both have a minimal allocation (2%) to Serbia**. Perhaps unsurprisingly it’s the largest country in Eastern Europe – Russia – where a wider range of opportunities are to be found. The Magna Emerging Markets Dividend fund currently has 10.9% exposure to companies in this country, including top ten holdings Moscow Exchange and Sberbank*. Manager Ian Simmons told us more about how dividends especially are improving in Russia in this podcast:

Turkey: 1,760 miles

Having reached Istanbul, it’s only to find that Turkey too seems to be a niche investment with only 411 listings on the Borsa Istanbul stock exchange. Only two Elite Rated products had any exposure at all: Federated Hermes Global Emerging Markets SMID Equity and M&G Emerging Markets Bond, both with less than 2%**.

*Source: Fund factsheet, 31 May 2021
**Source: FE fundinfo, 6 July 2021

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