Technology and globalisation will be pivotal factors for equity returns in Europe and globally going forward, according to Alexander Darwall, Head of European Equities at Jupiter Asset Management.
Alexander, who is celebrating his 10th anniversary as manager of the EUR1.8bn (GBP1.6bn) Jupiter European unit trust, has delivered top decile returns for investors, not only over the past decade but also over one, three and five years. Over 10 years the Fund has returned 124.37% against 43.43% for the benchmark FTSE World Europe ex UK Index placing it 2nd out of 63 funds in the IMA Europe ex UK sector. Over five years the Fund has returned 70.88% against 33.76% for the benchmark, placing it 3rd out of 83 funds in the sector. Over three years the Fund has returned 50.26% against 11.50% for the benchmark, placing it 3rd out of 99 funds in the sector and over the past year, it has returned 28.40% against 15.30% for the benchmark, placing the fund 4th out of 110 in the sector.
In addition to the Jupiter European Fund, Alexander has managed the EUR255m GBP£218m) Jupiter European Opportunities Investment Trust since November 2000 and the EUR346m (GBP295m) Jupiter European Growth fund (Sicav) since April 2007, together with a number of segregated mandates.
Darwall’s outperformance has been achieved through the consistent, long term application of his investment discipline and the benefit of a strong team around him.
Darwall, who has been managing money since 1995, explains: “I am fortunate to work with a team of very talented investors** and over the years we have worked together, we have developed a strong, collegiate environment which has proved highly beneficial to our performance.
“I am seeking to invest, not speculate: I am less worried about the daily movement of a company’s share price than with the real, underlying performance of the business and its future prospects. My focus is on understanding companies and utilising the long experience I have of both the hard factors, such as economics, history, industries, finance as well as the soft factors like company culture and institutional trading behaviour.
“If I cannot understand something then I will not invest in it, even if it is a large part of the index. For this reason, I tend to avoid the banks and I am generally underweight commodities and cyclical companies because they are overly dependent on macro factors which are difficult to forecast.
“What neither I, nor any fund manager, can predict is when the stock market will recognise superior company performance and this may lead to periods of underperformance. However, by being patient and confident in the underlying performance of the businesses in the portfolio, one can feel comfortable that eventually other investors will recognise that too.”
This disciplined approach has benefited fund performance throughout the past decade, helping him correctly position the portfolio for the few key themes that he believes have been critical to the Fund’s strong performance over the decade – the collapse of the technology bubble, the rise of emerging markets and the credit crunch. Looking forward, he believes that globalisation and technological change will remain key themes for the funds he manages.
“Europe has frequently been dismissed by investors during the past decade, as attention has centred on the political and structural issues facing the region," says Darwall. "Last year’s bailouts of Greece and Ireland have led to greater uncertainties about the future of the Euro project but, in my view, the march towards globalisation, led by technological innovation, has been of far greater importance to investment returns than these local issues.
“In my view, emerging markets and China will continue their ascendancy; European companies can be beneficiaries. Emerging economies, which account for around one-third of the world economy, are currently responsible for two-thirds of its growth. Many of the companies in my Fund have exposure to these areas and this is one reason why they have continued to perform so well in recent years. Many European-listed companies offering special products or services and demonstrable good value to consumers can continue to prosper in exotic locations.
“Technology and ‘globalisation’ are two key factors enabling companies to take cost and revenue opportunities more readily than in the past. Our holdings are dominant operators in niche areas. Their exposure to fast-growing economies around the world should continue to prove beneficial in helping to sustain their profitability.”
Two long term holds in Alexander’s portfolio which exemplify his investment approach are Novo Nordisk and Syngenta, both of which have been held continually since 2001. Novo Nordisk, the world’s leading manufacturer of insulin for diabetics, continues to grow its sales and profits, seemingly regardless of macroeconomic concerns because growth is underpinned by the global diabetes pandemic and product innovation. It has benefited from a significant new drug approval and new insulin analogues should boost profit margins further.
Syngenta is a global leader in crop protection (agro chemicals). Rising food prices continue to encourage farmers to try and maximise the crop yields from their land. Syngenta’s combination of hardy seed strains and pesticides help farmers to achieve this. Technology is likely to be a significant driver of agricultural development in future and Syngenta, as a world leader, is exceptionally well placed.
