Structural and political challenges and weak economic growth in Europe are masking strong investment opportunities in the small and mid-sized sector, according to Baring Asset Management.
Negative sentiment towards the continent’s economic prospects has caused valuations in many cases to become very attractive, leading to clear opportunities for active investors taking a long-term view.
Nick Williams, manager of the Baring Europe Select Trust and head of small and mid cap equities at Barings, says: “It is clear that there are significant concerns around growth in Europe, and investors are very right to be cautious. Core markets such as Italy and France remain firmly in the spotlight but a sustainable, broad economic recovery across the region remains unclear at the moment.
“However, the fact remains that Europe has a large number of dynamic, successful and growing companies, many of them global leaders in their fields. Recent volatility has ensured that Europe remains a ‘land of opportunity’ for stock pickers who can identify these well-priced, attractive opportunities. When sentiment is negative, we find that the number of opportunities to invest increases.”
Celebrating its 30th anniversary in September 2014, the Baring Europe Select Trust returned 12.9 per cent annualised over the past five years versus 10.2 per cent for its index. Over the past 30 years, the fund has posted annualised returns of 14.53 per cent, placing it third overall across all IMA sectors.
The fund is currently overweight France, Switzerland, the Netherlands and Italy, and also technology and consumer goods. It is underweight Spain and Sweden, and financials.
Williams says: “We see a range of opportunities to invest in undervalued companies. We firmly believe that the market for small and mid-cap companies in Europe remains inefficiently priced and that fundamental analysis is the best way to identify under-recognised growth opportunities in this asset class – particularly as the small and mid-cap sector is under-researched and less well covered than large caps. This drive to identify mis-priced opportunities has been the basis for the success of the Baring Europe Select Trust for the past three decades and we believe it will continue to underpin success going forward.”
The investment objective of the Baring Europe Select Trust is to achieve long-term capital growth by investing directly in the securities of European companies. As of 31 August 2014, the fund had an annualised five-year performance of 12.9 per cent versus 10.2 per cent for its benchmark, and annualised three-year performance of 15.4 per cent against 12.4 per cent.