Richard Troue: Europe's back and you can cash in with a high-quality approach


Looking at Europe today it is easy to forget that as recently as 2011 headlines such as "Greek Tragedy" and "Acropolis Now" were common as the debt crisis in Greece took centre stage.

In the depths of the Greek crisis, just as during the worst of the global financial crisis in 2008/2009, shares in European companies looked attractively valued. As is so often the case the point of maximum pessimism proved the best buying opportunity.

Despair turned to relief in summer 2012 and stock markets embarked upon a strong run when European Central Bank president Mario Draghi promised to do "whatever it takes" to save the euro.

Timing investments to coincide with such turning points is notoriously difficult, if not impossible. Many investors will have missed the bottom and after a strong, 18-month period might be concerned the best gains have passed.

It is true the valuation argument is no longer as compelling and shares are not as cheap as they were, but nor are valuations excessive. Europe offers a gateway to opportunities in both developed and emerging markets. Businesses with strong brands or a leading position in a niche market have the potential for sustained earnings growth throughout 2014 and beyond.

Amid the political and economic turmoil of recent years it has been easy to forget Europe houses many globally successful companies with strong cash flow, recurring revenues, and the ability to increases prices without affecting demand for their products and services. Such companies, despite not appearing particularly exciting at first glance, often have more secure profit margins and are well-positioned for long-term growth.

It might be difficult to find absolute bargains in Europe, but this doesn't worry Richard Pease, manager of Henderson European Special Situations, to a great degree. For him it is business as usual; investing in well-managed companies dominating their niche area; and selling high-quality products into overseas markets.

He looks for companies whose growth is driven by long-term trends and where a high proportion of revenues are recurring. Elevator and escalator manufacturers, such as Kone and Schindler, of Finland and Switzerland respectively, are examples. They can benefit from urbanisation and construction booms in emerging markets and a high proportion of revenue comes from maintenance services for previously installed lifts and escalators.

Companies supplying products which are important to the customer, but where the cost forms a small part of the overall price are also favoured.

A good example is the flavours and fragrances industry, where products made by Germany's Symrise and Givaudan in Switzerland, for example, are positively perceived by their customers, yet cost a fraction of their sale price to manufacture. Symrise and Givaudan, as well as Irish food ingredients manufacturer Kerry Group, are able to pass on cost increases as companies are reluctant to use alternatives for fear of altering their products.

Mr Pease aims to avoid companies overly reliant on the vagaries of the economic cycle or which are burdened by too much debt.

He also sees little opportunity in highly regulated consumer utilities (e.g. telecommunications, waste and energy utilities). This is an area where government involvement is particularly important, given its ability to control returns through regulation and taxation.

The portfolio generally contains about 60 stocks, including some higher-risk smaller and medium-sized businesses. Presently, just over half the fund is invested in businesses with a market capitalisation of less than €5bn (£4.12bn).

The fund was launched in October 2009 and so far performance has been impressive, growing by 65 per cent compared with 39 per cent for the sector average.

Following the strong run of the past 18 months the easy stock-market gains have arguably been made.

Looking ahead I believe that a more discerning approach could be necessary and Mr Pease's focus on high-quality businesses at reasonable valuations could serve investors well over the long term.

Richard Troue is an investment analyst at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit

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

Life and Style
love + sex
Life and Style
Tikka Masala has been overtaken by Jalfrezi as the nation's most popular curry
food + drink
A propaganda video shows Isis forces near Tikrit
voicesAdam Walker: The Koran has violent passages, but it also has others that explicitly tells us how to interpret them
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Graduate Application Support Analyst

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Reach Volunteering: External Finance Trustee Needed!

    Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

    Christine McCleave: FP&A Analyst

    £36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

    Recruitment Genius: Sales Executive - OTE £40,000

    £15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

    Day In a Page

    Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

    Climate change key in Syrian conflict

    And it will trigger more war in future
    How I outwitted the Gestapo

    How I outwitted the Gestapo

    My life as a Jew in wartime Berlin
    The nation's favourite animal revealed

    The nation's favourite animal revealed

    Women like cuddly creatures whilst men like creepy-crawlies
    Is this the way to get young people to vote?

    Getting young people to vote

    From #VOTESELFISH to Bite the Ballot
    Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

    Poldark star Heida Reed

    'I don't think a single bodice gets ripped'
    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn