Europe's Brands Beat Sluggish Growth

Columbia Threadneedle's David Dudding tells Morningstar's Samuel Meakin about the appeal of luxury European brands in a low growth, low inflation environment

Samuel Meakin 9 May, 2019 | 1:40PM

 

 

Sam Meakin: Welcome to the Morningstar Investment Conference. I'm joined by David Dudding, Manager of The Threadneedle European Select and Global Focus Strategies, and he has just come off stage from speaking to our delegates.

Thanks for joining me, David.

David Dudding: Hi. Thanks, Sam.

Meakin: So, Europe has been quite unloved and GDP has been fairly low for number of years now. How do people go about investing successfully in Europe?

Dudding: Well, just because GDP growth is low, which is undeniably true, doesn't mean to say that you can't make money. I guess, it's a market of stocks, it's not a stock market. So, I think you just have to try and dig deeper and try and find those companies, which are benefiting from their own sort of internally generated growth, either because they've got exciting innovative new products, or they're selling into the right geographies or are benefiting from sort of spending on technology. So, I think you just have to work a bit harder, but I think those companies are out there.

Meakin: And your approach focuses quite a lot on quality. Maybe you can expand a little bit on what you mean when you say quality?

Dudding: Quality is normally defined as companies that make high returns on capital employed. So they tend to be very profitable, they tend to have low levels of debt. So they're making a large amount of money without sort of borrowing to achieve those high returns. And they're also – they have very stable earnings growth. So, those are the sort of the definitions of quality would be stability of earnings, high returns, low levels of debt.

Meakin: And presumably those type of companies, therefore, can fit in quite well to a low growth environment and perform regardless of the sort of wider economic circumstances. Are there any particular examples that you would point out that have been particularly successful in doing that recently or you believe will do so going forward?

Dudding: Well, they do work well in low growth environments because they're what we would normally call compounders. So, not only are they – there isn't much inflation in Europe at the moment, and that's good for savers because it means that the value of their savings isn't being eroded the whole time by inflation. So, these companies can outperform inflation and increase the dividends effectively or consistently. And it's the consistency of the way they deliver those particularly important. So, it's growth year-in, year-out.

So, a fantastic example of that for us over the last few years has been Campari – Davide Campari is sort of properly called an Italian business, quite small by the standards of sort of global consumer staples companies, but benefiting a lot from the trend towards sort of aperitifs, bitters and cocktails. So, five years ago, I don't think you'd have seen any one drinking Aperol in London. Now I've seen it this year in Australia, the UK, Hong Kong. It's really taken the world by storm and that's as a result of clever marketing of a brand that's been around for very, very long time and they've done a fantastic job of using their Italian heritage to make that brand appeal in many, many different markets across the world, and now, I think, you're going to see them do exactly the same thing with brands like Grand Marnier.

Meakin: Great. David, thank you very much. Thank you very much for your time. This is Morningstar.

This article is part of Morningstar's special report on What the Experts Say

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About Author

Samuel Meakin  is a fund analyst for Morningstar

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