Important information: 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.
The European stock market isn’t renowned for its growth opportunities. Like the UK, it’s generally thought to be more exposed to cyclical value stocks, famous for its carmakers, industrial and energy companies.
But for Stefan Gries and Giles Rothbarth, managers of the BlackRock Continental European Fund, Europe holds a host of opportunities for the defensively minded. They’re attracted to businesses that can grow regardless of the wider economic environment, so the fund has the ability to hold up well when the economy stalls and offer investors the sort of defensive protection they may usually associate with markets overseas.
Holding between 30-60 stocks, the duo form part of a large group of portfolio managers and analysts at BlackRock covering the European universe. Together they apply a patient, high conviction approach to investing in European stocks which generate sustainable and profitable growth with some form of competitive advantage.
They like predictability. They’re looking for companies that offer reliable earnings and cash-flow trajectories. Businesses with clearly defined strategies, competent management teams and strong levels of cash generation that can be reinvested into future growth are all attractive. Conversely, the managers tend to avoid companies dependent on factors outside their control, like miners and banks.
The fund’s major holdings demonstrate this approach. The top 10 account for almost half the fund’s total weighting. It’s in these names that the managers hold highest conviction and see the greatest growth potential.
The top holding is ASML, a Dutch multinational that designs chips used across the world in semiconductors. The company controls the vast majority of activity within its industry and has a history of generating significant revenue and earnings growth. LVMH, the second largest holding, is another world-leading multinational which owns luxury goods brands including Louis Vuitton, Moet Hennessy and Christian Dior.
You’re likely to see companies that dominate their respective industries across the fund’s portfolio. A company like LVMH is able to use its aspirational brands to keep competition at arm’s length and offer the kind of reliable performance and growth that the managers are looking for. Lower down the portfolio, you’ll see stocks they feel could go on to become future leaders - one area they’re interested in right now is industries which could benefit from shifts to renewable energy sources.
The fund’s defensive characteristics helped it through the worst of last year’s pandemic-induced volatility. The managers kept the core of their portfolio intact amid the springtime sell-offs, trusting that a recovery would eventually come and that their holdings would prove robust in the meantime. They also saw the period as a buying opportunity, taking positions in attractive companies whose valuations had previously kept them out of reach.
This is a fund focussed on the long-term, and a similar level of patience is required from investors. The managers believe the key to wealth creation is high returns, growth and time. Though the fund may lag when cyclical sectors, such as energy and financials, outperform or when the market is sharply rebounding, they believe that their approach is the best for assuring outperformance in the long run.
Investors should appreciate that the fund’s relatively small portfolio (currently it holds just 36 names) and concentrated sector exposure means it could differ meaningfully from the wider European market. For those looking for a core exposure to Europe, it may be best to hold this fund alongside a more value-focussed offering. But for investors who are willing to accept performance that diverges from the wider market, the BlackRock Continental European Fund could offer a relatively steady ride and meaningful growth opportunities along the way.
More on BlackRock Continental European Fund.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. 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. Overseas investments will be affected by movements in currency exchange rates. This fund invests in a relatively small number of companies so may carry more risk than funds that are more diversified. This fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. 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 a Fidelity adviser or an authorised financial adviser of your choice.
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