Ben Yearsley: Don't let Greece fuss put you off Europe bargains

The Analyst

Throughout 2011 we were bombarded with headlines like Greek Tragedy and Acropolis Now as the Greek debt crisis took centre stage. It is little wonder that investors took fright and many European funds saw net outflows. It has become an unloved, neglected sector. Yet I believe it is worth looking beyond the headlines. Although Greece is symbolic of the wider problem of a lack of economic and political cohesion in Europe, the economy itself only represents around 2 per cent of eurozone GDP. Given that a "disorderly" sovereign default has been averted (for now!), perhaps we can concentrate again on the prospects for European equities whose values in many cases have fallen to attractive levels amid the prevailing gloom.

Europe has 500 million inhabitants and represents around 15 per cent of world stock market capitalisation. From an investment standpoint it is too large to ignore, but that is what many investors have done for nearly a decade, a far cry from the late 1990s when European funds were highly fashionable. The Greek crisis, and to a lesser extent what has been going on in the other peripheral European countries, has distracted and worried potential investors. As such the market is good value, trading on a price-to-earnings multiple of under 11, well below its historical average. In addition, many companies are quietly thriving. It is therefore worth looking again at Europe, especially since there are some high-calibre fund managers who have specialised in the area for a long time. One is Richard Pease, manager of the Henderson European Special Situations fund, who has 25 years' experience in the industry.

Let me firstly point out that the Special Situations moniker of this fund shouldn't put you off. The name suggests it might be a particularly high-risk fund, but I don't believe this is the case. Delve deeper into Mr Pease's investment style and process and you gain a fuller understanding of the fund and what makes it unusual.

Mr Pease favours "family businesses", essentially where founders or family still have significant shareholdings and are often involved in running the business. Frequently these are firms that would otherwise be private companies but have retained a stock-market listing almost by accident, for example if a large stakeholder wanted to exit in the past. In Mr Pease's words, they are companies that "don't really need him". They are well funded, robust and not vying for investors' attention. Once he has identified such a company he usually sticks with it, believing that buying a good business negates the effect of bad timing over the long term. Don't expect much chopping and changing in this fund.

Another trait Mr Pease searches for is recurring revenue. He cites the Fuchs Petrolub run by Dr Fuchs, a German lubricant company with a "sticky" revenue stream. Fuchs is the largest independent supplier of lubricants in the world and the company's products are used in lots of heavy machinery as well as standard vehicles. If Fuchs oil isn't used with certain machinery it can invalidate the manufacturer's guarantee, so plenty of cash is generated each year from the existing order book. Another example is Compugroup, which provides doctor and dentist software; 98 per cent of its revenue is recurring.

Many of these cash-rich, cash-generative companies are also producing good dividends and Mr Pease expects yields from lifts manufacturer, KONE, and Norwegian oil platform lease company, Fred Olsen, of 6 per cent and 8.5 per cent.

It is hard to ignore the political mayhem in Europe. Yet there are lots of world-class, niche companies there, and it is wrong to shun them just because of where they are based. As Mr Pease puts it, "Where you are born is less important than what you do afterwards." I believe investing with a manager like Mr Pease is an excellent way of taking advantage of the opportunities. His mantra of buying good-quality businesses and ignoring the short-term "noise" of the market should yield excellent long-term results for investors. I agree with his view that many investors have forgotten the golden rule of patience. There is nothing wrong with buying good-quality companies and waiting.

Ben Yearsley is investment manager at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

News
Ben Little, right, is a Labour supporter while Jonathan Rogers supports the Green Party
general election 2015
News
The 91st Hakone Ekiden Qualifier at Showa Kinen Park, Tokyo, 2014
news
Life and Style
Former helicopter pilot Major Tim Peake will become the first UK astronaut in space for over 20 years
food + drinkNothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
News
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Sport
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
football
Life and Style
health
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
News
i100
News
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
news
Life and Style
Buyers of secondhand cars are searching out shades last seen in cop show ‘The Sweeney’
motoringFlares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

    £50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

    Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

    £13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

    Ashdown Group: Training Programme Manager - City, London

    £40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

    Day In a Page

    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
    Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

    UK's Major Tum to blast off on a spice odyssey

    Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
    John Harrison's 'longitude' clock sets new record - 300 years on

    ‘Longitude’ clock sets new record - 300 years on

    Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
    Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

    Let the propaganda wars begin - again

    'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
    Why Japan's incredible long-distance runners will never win the London Marathon

    Japan's incredible long-distance runners

    Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
    Why does Tom Drury remain the greatest writer you've never heard of?

    Tom Drury: The quiet American

    His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
    You should judge a person by how they peel a potato

    You should judge a person by how they peel a potato

    Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
    Beige is back: The drab car colours of the 1970s are proving popular again

    Beige to the future

    Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
    Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

    Bill Granger cooks with fresh cheeses

    More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
    Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

    Shay Given: 'This FA Cup run has been wonderful'

    The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
    Timeless drama of Championship race in league of its own - Michael Calvin

    Michael Calvin's Last Word

    Timeless drama of Championship race in league of its own