Mark Dampier: Time to get switched on to a winning European fund
Saturday 08 May 2010
Given the problems we are seeing in Greece at the moment you might be forgiven for thinking I have lost my mind in suggesting a European fund. Still, I hope the one thing my column does show is that there is more to fund selection than looking at a name. Jupiter European is a case in point. The manager, Alex Darwall, is in my view one of the most underrated in the country.
He is not one for long discussions about the outlook for Europe and dismisses the relevance of Greece, which represents less than 2 per cent of the European economy and 1 per cent of the European stock markets. He is also of the view (rightly in my opinion) that the geographical location of larger companies in Europe is, for the most part, irrelevant. Today's globalised economy means that firms operate across borders in Europe, and often all over the world. This fund is therefore a far more global one than its European tag suggests.
As part of Mr Darwall's investment process he looks to identify long-term structural growth themes such as the rise in obesity, or the increase in demand for agricultural technology from climate change. He focuses his attention on getting to know companies inside out, and attempts to buy shares where he sees an asymmetric relationship between risk and reward. In other words where he believes there is little downside risk and a great deal of upside potential. This tends to result in a concentrated portfolio of what he calls "global winners" whose activities are truly international rather than simply being on the European stage. Europe has plenty of such opportunities, even though you might expect it to have very few given the unpopularity of the sector with investors.
Mr Darwall is very much an investor rather than a speculator, and some of his fund's holdings have remained in place for quite some time. His largest holding, Novozymes, is a world leader in enzymes, with around 50 per cent market share and profit growth of 8 per cent a year for the past 30 years. It has many attributes you want to see in a company; high barriers to entry, strong growth potential and robust sales worldwide. Another holding, Novo Nordisk, specialises in treatment for diabetes, a condition growing at more than 10 per cent per annum, clearly a strong structural theme. A further example is Aixtron, a manufacturer of equipment for producing light-emitting diodes. Some 78 per cent of the business is in Asia and if you have a Samsung TV it is almost certain this company was involved in making the backlighting. The use of LEDs is expanding into other areas too, such as car brake lights and street lighting in places like China. Yet LED penetration has not even really started in the consumer market so there is plenty more to come from this theme.
As part of his research Mr Darwall meets over 150 companies a year. With Jupiter a key investor for many companies, he has the opportunity to find out what really makes a company tick, examine the competition and consider the whole supply chain. While many investors think Europe is a quiet backwater of the investment world (and emerging markets like China are the place to be) they miss the fact that Europe is home to many world class companies.
Will the Greek problems derail the companies that I mentioned? I don't think so. Indeed one advantage arising from the Greek problems is a falling euro, which makes European exports more competitive. Consequently, if you understand the effects of globalisation you realise the significance of a company's location is becoming smaller and smaller. Far more important is appreciating the structural changes in the world economy today and focussing on the companies in the strongest positions to take advantage of them. In this regard you have a champion in Alex Darwall.
Mark Dampier is head of research 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
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