In a tough year for European stocks, Carmignac Gestion fund manager Mark Denham is not only beating the market but also enjoying positive returns, thanks to bets on beaten-down industry bellwethers and renewable-energy shares.
HisCarmignac Portfolio Grande Europe fund is up 12% this year versus a 7.4% drop in the Stoxx Europe 600 Index and it’s beating 95% of peers. A conviction that some kind of normalcy would return to a post-pandemic world prompted Denham to snap up shares of U.K. caterer Compass Group Plc and Spanish travel-booking company Amadeus IT Group SA after the market rout in the spring, he said.
“We have a long-term investment horizon, so the pandemic created a buying opportunity on stocks that were previously expensive, and allowed us to increase our exposure to others,” Denham, the head of European equities at Paris-based Carmignac, said in a phone interview.
Denham typically holds 35 to 40 stocks in the 583-million-euro ($689 million) fund, which has beaten its benchmark over the four years he’s been running it. He seeks companies that have sustainable growth and ideally reinvest profits, and doesn’t take a top-down view on the economy or politics.
The strategy has resulted in the fund having a high exposure to technology, health care and some consumer and industrial companies. By contrast, he mostly avoids financials, commodities, telecoms and utilities.
The manager didn’t change his process when the pandemic hit, and recent positive news about a potential vaccine had no impact on his stockpicking either, said Denham, who joined Carmignac in 2016 and has 30 years of experience at asset managers including Aviva Investors, Insight Investment and National Mutual Life.
“Since the crisis started in February-March, we have expected that ultimately we return to some form of normal situation at some point,” Denham said. “We didn’t know exactly when, but we felt that we would recover –- either using a vaccine or through learning to live with the virus.”
Green themes have been in focus for Europe this year, with renewable-energy producers strongly outperforming the market, as Europe putclimate goals at the center of its economic recovery plan. Denham said he’s been riding this trend and will continue to do so. In renewables, the fund holds offshore wind power company Orsted AS and turbine maker Vestas Wind Systems A/S, while also having positions in companies involved inbuilding renovation like Kingspan Group Plc, Sika AG and Schneider Electric SE.
While Europe lacks technology giants to rival Facebook Inc. or Amazon.com Inc., causing its market to underperform the U.S., renewable energy is an example of an industry where it is a leader, he said, sportswear and luxury goods being two others.
And he’s finding tech stocks worth holding, pointing to software company SAP SE and chip-equipment maker ASML Holding NV.
“The digitization trend can still be played with European stocks as the region is home to niche leaders like SAP and ASML,” he said.Disappointing results from SAP pushed Denham to trim his position to reflect risks, but he said he’s confident the company is doing the right thing strategically.
As for stocks listed in the U.K., one of the most out-of-favor markets among institutional investors, Denham is underweight, with only a handful of holdings including Experian Plc and Ashtead Plc. Denham said he prefers to hold positions in internationally exposed companies rather than domestically focused U.K. firms, but this has nothing to do with the U.K.’s departure from the European Union.
“I am just hopeful that any kind of deal gets done, so we can move on and that things can improve,” he added.
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