Industry Voice: European equities: Finding the diamonds in the rough
Advisers and investors may ask themselves whether there are good reasons to consider Europe for investing. Carmignac’s Head of European Equities and Fund Manager Mark Denham argues that if you know where to look, there is much to be optimistic about.
Carmignac's Head of European Equities and Fund Manager Mark Denham is convinced of Europe's potential. Denham is a stock-picker who understands businesses from the bottom up and selects companies for their individual characteristics and prospects rather than taking a regional top-down view or emphasising sectors. "There is always something happening" he says. "As an investor, and especially as a stock-picker, you need to find the diamonds in the rough - and Europe has plenty. It's more a matter of finding them."
As such, Denham follows a simple philosophy: he focuses on companies that can demonstrate high and sustainable profitability and reinvest profits internally for future growth. "Whatever the background, I will always look for companies which can grow under their own steam and are less reliant on the economic background to generate good long-term returns," he says.
Being socially responsible is an important factor for good long-term prospects, and Denham therefore integrates this thinking within his investment process: "I think it's a mistake to consider ESG or SRI as a separate part of the process, as it is as important as financial criteria in assessing which businesses have the best long-term prospects." Sector allocation is therefore driven by stock-picking, rather than the opposite: "We have no sector bias, we can invest in the pharmaceutical sector or the industrial and consumer arena, wherever our investment process brings us."
Denham's selective criteria and sustainability filters naturally encourages him to invest in innovative companies. "Innovation is critical for future success" says Denham. "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. And when we talk about innovation, we do not only mean technology." He believes innovation can come in many shapes and sizes, often tech is just the enabler. According to Denham, the diversity of sectors where innovation is taking hold is bigger than we may think, offering a great selection of opportunities across European equity markets.
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