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Much has been made of how technology and healthcare companies have enjoyed a bumper year over 2020. The pandemic has left us increasingly dependent on their services, and it’s fuelled an ever-widening gap between companies that have benefitted from the virus and those struggling to cope.
Take a look through the portfolio of the Comgest Growth Europe Ex UK fund, one of our Select 50 recommended investments, and you’ll find plenty of those market beneficiaries driving its returns. This is a fund that focusses on capturing strong European companies such as these which offer the greatest growth potential over the long run. It’s by sticking to this approach and maintaining a long-term perspective that the fund’s managers hope to deliver strong capital growth for their investors through 2020 and beyond.
In it for the long run
My colleague, Ed Monk, recently caught up with Alistair Wittet, the fund’s co-lead manager, to discuss the team’s philosophy and their outlook for Europe over the coming months. He took Ed through the fund’s focus on ‘quality growth companies’ - that is, companies with high barriers to entry, strong returns, and sustainable (he’s keen to emphasise that word) growth prospects.
That approach is bolstered by a unique “partnership structure”, whereby the managers are all shareholders in Comgest, which Wittet feels differentiates the fund from others in the European growth market. He explains that: “we have a structure that enables us as portfolio managers to not worry about the short term, to not worry about quarterly results or day-to-day news flow, but to focus very much on the long-term prospects of these companies.”
This long-term focus permeates everything Wittet and fellow co-managers, Franz Weis and Arnaud Cosserat, do. Starting within the Comgest offices - he explains how low employee turnover means he’s been speaking to the same colleagues over his entire eight years at the company - it’s a philosophy that feeds directly into the managers’ stock selection process.
The fund has only ever held 140 different companies since the launch of Comgest’s pan-European strategy 30 years ago. That means that the managers take high-conviction positions in a concentrated portfolio of stocks. They currently hold 36 companies, with the top 10 positions accounting for 41.2% of the total portfolio. Like its employees, this fund’s holdings are in it for the long run.
Growth, growth, growth
This approach leads Wittet to certain other style biases. He explains how, over the fund’s history, the fund has never held a single bank, commodities, utilities or oil & gas company. Rather, an ardent long-term focus on quality European growth stocks draws him to three areas in particular - healthcare, software and brands.
Healthcare accounts for 28% of the fund’s holdings, with companies like Swiss giant, Roche, and Danish pharma company, Novo Nordisk, occupying the fund’s top and third positions respectively.
Software, meanwhile, is one of the Europe’s key growth areas, with well-known firms like SAP occupying large positions in the fund.
Naturally, the extent of the sector’s ascendancy this year has left many investors worrying over companies’ valuations. When asked if he envisages moving away from tech, Wittet explains: “If valuations got extreme that’s quite possible. But I don’t think we’re there yet. I think the prospects for these sectors remain extremely strong.”
He acknowledges how companies’ increased investment in technology has been one factor behind the sector’s inflated success this year.
But he also points out that similar investments in traditional sectors like banks and hotels have been “too timid to date”, with the former coming under increasing threat from fin tech companies, and the latter from innovative models like that of Airbnb’s. As such, it’s an area where he still sees plenty of growth to come.
Wittet also points out the fund’s strong ESG credentials. That’s part by design - he explains that the managers avoid “dirty” stocks like oil & gas companies - and part by the nature of the fund’s objectives - in his eyes, their “long term mindset is very consistent with strong ESG companies”, explaining how easily an “intangible ESG risk becomes a real financial risk”.
It’s a question we’ve all asked at some point or other. As UK investors, we’re often guilty of overlooking Europe in favour of our home market or the high growth opportunities available across the pond.
As you’d expect, Wittet is keen to fly the European flag. On the one hand, this market is home to some of the globe’s best and most well-known brands, especially within its emerging markets.
But at the same time, he doesn’t really see his stocks “as being ‘European’ companies” at all. Indeed, almost half of the portfolio’s sales are made outside of Europe. He cites L’Oréal as an example - L’Oréal, though based in France, is a global brand, with its sales-split almost exactly mirroring global GDP.
Wittet explains: “I wouldn’t say ‘buy into this fund to get exposure to Europe’. I would say ‘buy into it to get exposure to some of the best businesses that are being exported globally’.” In his eyes, it’s a fund that offers the best of both worlds.
More on Comgest Growth Europe ex UK
Important information: 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. 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. This fund invests in a relatively small number of companies and so may carry more risk than funds that are more diversified. 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.