Investors need to stick with the biggest long-term trends in consumer habits to beat the slow rate of Europe’s earnings recovery, according to Comgest’s chief investment officer Arnaud Cosserat.
Speaking to Citywire Global, Cosserat predicted earnings growth of 18% for his €1.94 billion Comgest Growth Europe Euro fund this year, against an European average of around 5%.
He believes investing in companies with strong structural growth potential can help to protect investors from the volatile cyclical growth trends currently being seen in Europe.
In general, he said the increase in stock prices is outpacing the rate of earnings growth on the continent, causing premiums to narrow.
‘Lately in Europe, we have seen the whole market rise a bit too fast from the beginning of the year until May, driven mainly by liquidity and ETFs. Prices have pulled back since May with the Grexit risk and the Chinese market volatility, and we have seen some profit-taking.'
‘At the end of the day, most stocks are driven by earnings and the valuations of our funds haven’t moved much.’
Cosserat said the stability of his portfolio is a reflection of a selection of stocks exposed to 'structural trends', and points to his fund’s biggest sector – healthcare – as a favourite area.
‘For example, our stock Novo Nordisk, which is the world's leader in diabetes treatment, is now also involved in tackling the obesity epidemic worldwide.’
The Denmark-headquartered pharmaceuticals company, to which Cosserat has allocated 4% of his fund, has seen its stock price rise 40% year-to-date.
This is against a backdrop of a slow global earnings recovery. ‘The world’s GDP is currently very weak due to a lack of capital investment recovery. We are seeing a dearth of earnings growth worldwide and forecasts have dropped from more than 10% at end of last year to 4% now.’
Healthy food and cosmetics
Elsewhere, Cosserat singles out the health food industry as a sector that looks set to thrive despite low GDP growth: ‘We have been well rewarded by our 2.5% position in the Danish company Chr. Hansen, a global leader producing natural ingredients, proteins and enzymes for many food manufactures.'
‘These days people are becoming increasingly selective in what they eat, and Chr. Hansen is benefiting greatly from this trend.'
Cosmetic treatments is another area Cosserat is positive on. ‘This is a fantastic field to find sustainability because the world is aging more and as people grow older, they not only want to be healthy but also look younger.'
Steer clear of natural resources
Cosserat's fund is not directly exposed to highly cyclical and commodity sectors like natural resources, commodities and banks.
‘UK natural resources and oil companies are suffering a lot this year. We do not have any direct exposure to these sectors, but we have found that even Core Labs, an oil testing service provider, has suffered a bit from indirect exposure this year.’
Over the past five years to June 2015, the Comgest Growth Europe fund returned 100.89%. This is while its Citywire benchmark, the FTSE World Europe index, rose 81.52% over the same timeframe.