“The best opportunities always lie in the small company arena,” says Robert Smith, manager of the Baring German Growth Trust , a Select 50 fund.
While Smith has the flexibility to invest in companies across all market capitalisations in search of capital growth for his investors, the manager finds himself going back to the smaller end of the scale, believing companies there offer greater growth potential. He explains, “The mega cap stocks just cannot grow very fast and no matter how expensive markets appear sometimes, you can always find a good ten or a dozen small cap names with significant growth potential.”
Citing the wealth of world leaders in niche sectors at this end of the market, the manager expects smaller German companies to continue to drive the country’s economy over the long term.
It is no accident that Smith is well-suited to identifying growth opportunities overlooked by most analysts, particularly among the lesser-known businesses. His previous experience as a European equity analyst and UK small and mid-cap manager means he is well-drilled in unearthing growth stories where others fail to look.
In search of these hidden gems, Smith is able to draw upon his own research measures and daily screening processes as well as introductions to new ideas through local German brokers. Narrowing his search to companies listed in Germany, or with significant operations in the country, allows the manager to scan the market for local winners away from the bigger names.
Barings has a wealth of experience investing in Europe’s largest economy, having launched the fund amid German reunification in 1990. The current ‘growth at a reasonable price’ (GARP) strategy has been in place since Smith took the helm nine years ago.
This process searches for companies that will demonstrate strong growth over the next three to five years, and whose potential other investors appear to underestimate. Smith scrutinises these opportunities with the help of eight others, each of whom has around 18 years of investment experience.
In addition to meeting with company executives, the team will interview industry suppliers, customers, and government officials to form a broad view of the environment in which each company operates.
Some of the bigger names in the fund include more familiar German names like Allianz and Bayer but the main themes coming to the fore among the holdings are industrials and engineering. The manager believes a new phase of global growth will prompt companies to invest in themselves and new projects, with positive knock-on effects for German businesses. As a result, the manager has built stakes in technology group Siemens and aircraft manufacturer Airbus, along with military technology group Rheinmetall and building material supplier Heidelbergcement.
For more on the Baring German Growth Trust, visit the fund factsheet.
The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. This fund invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. This fund invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.