While political commentators can’t get enough of it, Europe hasn’t been very popular among investors recently. Nervous over what Brexit will mean for all involved, market watchers are seemingly happy to sit on the side lines for the time being.
Whereas many investors focus on global events and their knock-on effects for company shares, de Fonclare takes the macroeconomic uncertainty out of his equations before he even begins. He explains: “We don’t bet on the macro here because I don’t expect or factor in any kind of support from the underlying environment in Europe. But there are opportunities at a stock level in picking the right companies who offer something unique and are able to differentiate themselves from the competition.”
How do companies make it into the fund?
Focusing on the fundamentals, de Fonclare looks for companies whose growth expectations are mispriced by the market and who ought to grow faster than GDP. Then it’s a case of making sure he doesn’t overpay for that growth potential.
The approach is highly company-specific, rather than scanning at the sector or national level, and allows the manager to get in to the nuts and bolts of the companies he’s interested in. He explains: “We meet the management and have a broader view of the industry of our companies by meeting competitors, suppliers and clients to understand the shape of the industry.
“After that it’s about understanding what’s driving the business: Are they sustainable? How do they protect their profitability? What is the management’s strategy - are they willing to spend more money or return more money to shareholders?”
Which companies have met the standard?
Charm-bracelet producer and jewellery store Pandora is one of the fund’s top 10 holdings, with the manager highlighting their ability to retain their popularity on the high street despite a flurry of retail woes over the past few months: “They offer something unique and are clearly a very successful retailer at the moment. They are able to differentiate their offering from other retailers and are growing well.”
Perhaps a less well-known holding is French firm Valeo, operating in the automotive industry. On a global level, many investors are uncertain over the outlook for demand in the industry, especially from China.
However, underlining his process, the manager looks to the second-order investment opportunity over the short-term macro environment: “Here is a company that is providing all of the electronics in cars - safety, communication, CO2 reduction equipment - who will be able to outgrow the industry because the electronic component percentage of a car is growing year on year. It’s currently around 30% of the overall value and will probably be 50% in a few years’ time. And you’re not paying a very high valuation so that’s quite attractive for us.”
For more on the Jupiter European Special Situations Fund visit the fund factsheet, and watch our interview with Cédric de Fonclare below.
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