The hunt for European companies with global revenue streams is overplayed and it is now time to find truly domestic-focused stocks in order to capture Europe’s recovery.
In his latest market commentary, Beckett said the much-publicised attempts by European fund managers to look for indirect growth stories – either through the US or the emerging markets - was no longer attractive.
‘European fund managers found themselves focusing on a well-reasoned investment thesis; buy companies with global revenue exposure to balance out the risk in domestic consumption – they are, after all, an inexpensive way of accessing global GDP.’
However, Beckett said, widespread monetary stimulus, geopolitical tensions in the emerging markets and a difficult time for developing world currencies had hampered European equity managers.
He said this had come at a time when Europe is beginning to show improved performance, with supply-side reforms taking effect and an uptick in manufacturing in Germany, Italy and France.
‘A number of other important macro indicators profess a similar positive story, and I think these point to adopting a differing investment thesis of being ‘Unashamedly European’,’ he said.
‘Buy domestically exposed stocks in a European economy where domestic demand has improved and is somewhat shielded from key current global macro issues.’
Beckett has translated this into his fund by taking a 1.6% position in Swedish kitchen manufacturer Nobia, which is despite a difficult period of performance for the Nordic company.
‘Considering the discretionary and cyclical nature of the industry the recession has hit Nobia hard, but with prudent cost cutting the earnings leverage is proving to be advantageous as growth starts to come back through,’ he said.
In addition, he has a taken a minor (0.72%) position in market research group GFK. Beckett believes the German group has benefitted from internet use being more deeply integrated in people’s daily lives.
‘As such, it has become more important for companies to put emphasis on studying consumer trends, but also for them to outsource this work due to the on-going development required of the market research tools to do the job.’
‘In terms of revenue, the focus is very much Europe; the exposure for FY12 was around 87% of the mix.’
The Henderson HF Pan European Smaller Companies fund returned 44.27% in the three years to the end of June 2013. This compares to a 42.7% rise by its Citywire benchmark, the MSCI Europe Small Cap TR USD.