Home—Blog—Is it time to revisit southern Europe?
Jun 06, 2012, 10:03
Posted byMerryn Somerset Webb
Comments (10)
I wrote here about how given the cheapness of many of the peripheral eurozone markets, it might be time to start putting in a little money. The markets will probably get cheaper – there’s still too much hope knocking around – but nonetheless, on their current cyclically adjusted p/e ratios the likes of Spain and Italy really don’t look so bad.
Having had that thought last week – and being unwilling to suggest that any of you took the risk of buying only a couple of stocks (who knows how the crisis is going to affect individual companies?) - I started to look for a good fund to suggest.
It wasn’t easy. We’ve often complained about consensus investing among the big fund managers and the lack of really active thinking or trading among the managers we all pay to be active. But look at the top holdings of the big European managers and you will really see what we mean.
They are all heavily invested in the north of Europe. They are all almost entirely absent from the south. They all hold Nestlé. They all hold Unilever. They all hold Sanofi. They all hold SAP. And so on. There is an astonishing lack of diversification.
Now, Nestlé and Unilever aren’t bad companies. Far from it. But it just doesn’t seem quite right that everyone has them. I asked one top performing European manager about it. He didn’t see it as a problem. Take Nestlé he said. It is 5% of the benchmark (there’s a clue as to why managers judged against the benchmark like to hold it here…); it has almost no debt; it can borrow at almost zero should it want to; input prices for its products are falling; it pays a 4% dividend; and if the euro keeps weakening, it will see profits upgrades as dollar earnings are translated back into euros.
Sign up for a 3-week FREE trial of MoneyWeek and get the following free as well
"The only financial publication I could not be without." John Lang, Director, Tower Hill Associates Ltd
That seems entirely reasonable. But I noted afterwards – running through our emails - that there had been no mention of price, the point being that great companies can very easily become expensive stocks.
Then I asked Chris Rice, the manager of the Cazenove European Fund. He rather agrees that some of these favoured stocks are overbought and overpriced – he sold Unilever and Nestlé last week. Time, he says, to take a look at the likes of Axa and Renault instead.
Finally I spoke to the mostly nice people at Hargreaves Lansdown who provided me with a list of the European funds with the most exposure to the peripheral eurozone markets for those of you who are interested (see below).
• Subscribers can read more on this in this week's magazine, out on Friday.
Published in Blog More articles by Merryn Somerset Webb
May 16, 2013
By John Stepek, May 07, 2013
By Matthew Partridge, Apr 24, 2013
By John Stepek, Apr 16, 2013
Leave a comment
(06 June 2012, 10:42AM) Complain about this comment
Tricky one. Every week Moneyweek recommends that one sticks with blue chip defensive, high dividend paying stocks (oils, pharmas, utilities, insurers etc).And now you complain when all professional fund managers do likewise.What would you prefer. A fund manager to have 5% in MAN Group or be trying to catch the bottom of Facebook or having a punt on bank stocks ?
(06 June 2012, 11:18AM) Complain about this comment
We'd just like to see a little less consensus among the fund managers. Plenty of diversity of opinion among MW staff. But apparently none in the fund mgmt business.
(06 June 2012, 12:18PM) Complain about this comment
A bit harsh #1. Your last argument is flawed as the choice you present at the bottom is between two extremes. I think what Merryn means is she would prefer fund managers who, rather than just owning what everyone else does, work on trying to find lesser known companies that others don't hold, but that are nonetheless well run, with solid fundamentals and growth prospects . Such a strategy would certainly rule out both the massively overhyped Facebook and trying to punt on bank stocks. Such companies do exist, as there's a lot of stuff out there that isn't Nestle, Unilever on the one hand, or Facebook, Bankia on the other.
(06 June 2012, 09:57PM) Complain about this comment
How would JPMorgan European Investment Trust compare with these? I prefer investment trusts where possible.
(07 June 2012, 08:56AM) Complain about this comment
@ Merryn - how about Spanish property? It is down a lot. Is now a good time to get in?
(09 June 2012, 04:07PM) Complain about this comment
The fact that there are no investment trusts mentioned leaves me unimpressed by the depth of the article. Ah well, perhaps another case of 'do your own research'.
(09 June 2012, 10:29PM) Complain about this comment
Merryn, I think you make a good point. It is probably too late to be buying into the already over bought blue chip Northern European safe haven types of equities. New money being invested today might indeed see better growth in the un-loved southern european stocks.
(12 June 2012, 11:34AM) Complain about this comment
Merryn, I find your willingness to call the the bottom of the market for Italy in particular quite premature and difficult to understand.Italy is a country whose economy has massive structural problems and with an incredible demographic problem and less than average (in)comeptent corrupted elderly politicials who are uncapable to modernise the country. At the last count there were 88 MPs under investigation. Not to mention the widespread levels of corruption in the society which, especially in the last 17 years have been quasi-legitimated by Mr Berlusconi's ad personam's law. In addition, the real strength of the Italian economy does not lie in the limited number of (often badly managed) listed stocks but in the privately owned SME companies. Hence, by buy Fiat, ENEL or ENI stocks one does not really get access to the core of the Italian economy whose strength is in totally different sectors.
(12 June 2012, 11:35AM) Complain about this comment
Although I have a lot of respect for your views which I generally share, in this case I have to say that I think that you have been far too quick to call the bottom of the Italian stock market. If Japan is an indication of where we are heading, it has a long long way to fall before we reach the bottom. Without mentioning the specific issues of the Italian market mentioned above (ie corrupution, demography, bad management of large listed companies). I suggest one of your journalist jump on a flight to Milan or Rome and has a drive around to see with their own eyes...
(25 June 2012, 03:10PM) Complain about this comment
@Alberto, we aren't calling the bottom at all. The mkt could easily fall substantially from here. The point is just that this is the kind of price from which mkts have historically returned double digits over a decade. That makes them worth looking at given that one thing we know for sure is that mkts and economic growth are not correlated.
Name This will be the name displayed with your comment.
Email This helps us verify comments are genuine. It will not be displayed anywhere on the site and is stored confidentially.
Comment Please keep your comment within 1,000 characters and relevant to the main topic. We encourage healthy debate, but we don't allow insults or bad language. Anything off topic or unpleasant, we'll remove. Enjoy the conversation! Thank you.
To prevent spam-related comments please enter the characters shown in the 'Captcha' box to the left.
Enter the text from the box above
Remember my details
By leaving a comment you accept our terms and conditions.
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.Sign up FREE to Money Morning here.
16 May 13
14 May 13
16 April BBC Radio Scotland(From 1h 45m in)
21 March Radio 4: Moneybox Live
12 March Photogallery of Merryn's talk at BAB London
Become a smarter investor in just 3 minutes a day.
MoneyWeek is not responsible for the content of external internet sites.