With 25 years’ experience dedicated to European stocks, Carmignac’s Head of European Equities Mark Denham has the expertise to pick out the companies with true long-term promise in Europe, avoiding those that don’t offer long-term reward for investors even though they are well-known names.
How do you rate Europe's prospects and how does that affect investing in the region?
Europe's recent struggles and uncertainty have been well documented; and although it is true that low growth in the region is set to persist (the latest IMF growth forecasts expects the US to grow 2.4% in 2019, China 6.1%, while the euro area's GDP is predicted to increase by 1.2%), the region's equity markets have in fact returned on average 7% to 8% per annum compound over the past three years.
Traditionally, Europe's equity market confidence has been underpinned by its world-leading companies - across sectors as varied as consumer goods, autos, or fashion. However, we believe that investors should not be reliant on the market to drive stock movements but should instead use a fully active approach to identify companies that will grow regardless.
How does this fully active approach help you?
The world is now changing at a pace never seen before. In the past, companies could follow the same strategy for 30 years. Those days are gone, industries need to change fast, at least as fast as consumers' preferences are changing if they want to stay in the game. Investors must respond to those changes, too, to avoid being left behind.
Because there are around 1,500 companies in Europe with a market capitalisation of over €1 billion, it is a common strategy to rely on index heavyweights; but many of these are not delivering. Only by rigorous screening can we find the finest names that can grow under their own steam.
Complete investment freedom helps us to find opportunities. Europe has great businesses, but investors must look closely to find characteristics that set firms apart: what makes them more likely to consistently deliver strong returns, irrespective of the economic, social and political environment.
What gives you an edge over other active managers?
Focus, and selectivity. For the FP Carmignac European Leaders fund, we look for companies that have a high sustainable profitability, and who reinvest these cash flows for the future. This allows their capital base to expand, leading to a compounding effect in the intrinsic value of the business over the long-term. The compounding effect is often underestimated by markets with a short-term outlook, but patience rewards investors.
We also have a strong socially responsible investment focus, embedded in the Fund's investment process through negative screening, positive impact filtering, and ESG criteria integration. We believe that risks and opportunities go beyond just financial criteria, and that this is part of assessing a company's attractiveness for the long-term.
This helps us to uncover opportunities where you may not expect. For example, and perhaps counter-intuitively, we find very innovative companies within Europe's industrial or the healthcare sector. But it's good to challenge perceptions - that's often how you find great ideas
Risk scale 5 from the KIID (Key Investor Information Document) for the A GBP acc share class. Risk 1 does not mean a risk-free investment. This indicator may change over time. The risks and fees are described in the KIID. MAIN RISKS OF THE FUND: EQUITY: The Fund may be affected by stock price variations, the scale of which is dependent on external factors, stock trading volumes or market capitalization. CURRENCY: Currency risk is linked to exposure to a currency other than the Fund's valuation currency, either through direct investment or the use of forward financial instruments. DISCRETIONARY MANAGEMENT: Anticipations of financial market changes made by the Management Company have a direct effect on the Fund's performance, which depends on the stocks selected. THE FUND PRESENTS A RISK OF LOSS OF CAPITAL.
PROMOTIONAL MATERIAL. This document may not be reproduced, in whole or in part, without prior authorisation from the Investment Manager. This document does not constitute a subscription offer, nor does it constitute investment advice. Past performance is not necessarily indicative of future performance. FP Carmignac ICVC (the "Company") is an Investment Company with variable capital incorporated in England and Wales under registered number 839620 and is authorised by the Financial Conduct Authority (the "FCA") with effect from 4 April 2019 and launched on 15 May 2019. FundRock Partners Limited is the Authorised Corporate Director (the "ACD") of the Company and is authorised and regulated by the FCA. Registered Office: Second Floor, 52-54 Gracechurch Street, London EC3V 0EH; Registered in England and Wales with number 4162989. Carmignac Gestion Luxembourg SA, UK Branch (Registered Office: 2 Carlton House Terrace, London, SW1Y 5AF. Registered in England and Wales with number FC031103, CSSF agreement of 10/06/2013) has been appointed as the Investment Manager and distributor in respect of the Company. Access to the Company may be subject to restrictions with regard to certain persons or countries. The Company is not registered in North America, in South America, in Asia nor is it registered in Japan. The Company has not been registered under the US Securities Act of 1933. The Company may not be offered or sold, directly or indirectly, for the benefit or on behalf of a U.S. person, according to the definition of the US Regulation S and/or FATCA. The Company's prospectus, KIIDs and annual reports are available at www.carmignac.com or upon request to the Investment Manager. The KIID must be made available to the subscriber prior to subscription. This material was prepared by Carmignac Gestion Luxembourg SA and is being distributed in the UK by the Investment Manager.