Are UK investors missing out by avoiding Europe’s minnows?
Europe is not only home to world leading household names, but also plenty of innovative smaller companies that make very attractive investments.
These smaller businesses tend to be less well researched by analysts and therefore have a greater chance of delivering better-than-expected returns.
However, it’s an area that’s often overlooked by UK investors, according to an analysis of data published by the Investment Association.
Low funds under management
The IA European Smaller Companies sector only has £1.9bn in funds under management, according to the IA’s September figures*. In comparison, the IA UK Smaller Companies sector, which has £11.1bn under management and the IA UK All Companies sector, which has £138.4bn*.
But are investors shunning this area missing a trick? Are they running the risk of ignoring exciting stocks with loads of potential that are flying under the radar?
Investment funds buying smaller companies
The managers of European smaller companies investment funds, which include some very experienced industry figures, would certainly agree this is a possibility.
However, smaller companies haven’t been immune to the economic and political problems, according to Ben Griffiths, manager of T. Rowe Price European Smaller Companies Equity fund.
“Recent developments are likely to put pressure on costs, supply chains and demand, weighing on corporate earnings across most sectors,” he said. “At such times we believe it is even more important to remain focused on fundamental smaller company research where we can have an edge.”
Favoured companies
Here we take a look at some of the companies favoured by European smaller companies managers.
ASR Nederland
ASR Nederland is a Dutch insurance group that offers a wide range of financial products covering non-life, life and income protection insurance. It also covers group and individual pensions, health insurance, travel and leisure, funeral insurance, and mortgages.
The company is currently the largest stock position in the Barings Europe Select Trust, with a 2.39% share of assets**. The portfolio, which is run based on GARP (Growth at a Reasonable Price), is managed a team of four co-managers: Nicholas Williams, Colin Riddles, Rosemary Simmonds, and William Cuss.
FinecoBank
FinecoBank is an Italian FinTech bank that offers banking, credit, trading, and investment services from a single account. It was launched just over 20 years ago and is listed on the Euro Stoxx 600 Index. According to the company, it has more than 1.4 million clients and €102.8bn in total financial assets.
Paolo Di Grazia, FinecoBank’s deputy general manager, believes powerful technology and the interpersonal skills of a financial advisor will be increasingly needed. “Fineco has a highly diversified and well-balanced business model that combines the best technology platform with a vast network of financial advisors,” he said.
FinecoBank is currently the largest stock position in the Jupiter European Smaller Companies fund, with a 4.3% share of assets**. The fund, which is managed by Mark Heslop, with assistance from Mark Nichols, was launched in February 2020 and about to mark its third anniversary.
Bawag
Bawag, which is based in Vienna, Austria, offers a wide variety of financial products to retail, small business, corporate and public sector clients. These include comprehensive savings, payment, lending, leasing, investment, building society, factoring and insurance products and services.
It operates in Austria, Germany, Switzerland, the Netherlands, and other developed markets across multiple channels and under various brands. These include easybank, BAWAG PSK, Qlick, and BFL LEasking GmbH.
Bawag currently has a 3.6% share** of the T. Rowe Price European Smaller Companies Equity fund, which has been managed by Ben Griffiths since 2016. The fund, which aims to increase the value of its shares, over the long term, by growing the value of its investments, has exposure to a broad cross-section of sectors.
IPSOS
IPSOS is a multinational market research and consulting firm that’s based in Paris, France. It was founded by Didier Truchot in 1975. The company’s solutions include market strategy, brand health tracking, audience measurement, media development, and mystery shopping.
IPSOS is currently the largest stock position in the Janus Henderson European Smaller Companies fund** that’s managed by Ollie Beckett and Rory Stokes.
The fund currently has 92 holdings and the ten largest account for 21.25% of assets under management**.
According to Didier Truchot, the need for reliable information to make confident decision has never been greater. “We believe our clients need more than a data supplier, they need a partner who can produce accurate and relevant information and turn it into actionable truth,” he said.
*Source: Investment Association, September 2022
**Source: Fund factsheet, September 2022
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund manager and do not constitute financial advice.