Don't let headlines about riots in Athens scare you away from Europe — it is where plenty of the smart money is heading.
“The market, in general, has been totally distracted by what's happening in places like Greece, and people are completely ignoring what's happening at the companies,” said Tim Stevenson, director of Pan-European equities at Henderson Global Investors, which manages more than $96 billion. “Regardless of the macroeconomic crisis and panics, over the past 10 years, a lot of European companies have gotten stronger and stronger, and became more global.”
Although swelling public debt and talk of tough austerity measures are scaring away individual investors — they pulled out a net $8.2 billion, or about 44% of total assets, from 34 European funds in 12 straight months of withdrawals through May, according to Morningstar Inc. — money manager interest in companies that are leveraging the weak euro may have contributed to a 35.8% average return for those funds over the same period.
“Most of the European stocks we like are geared toward the global economy,” said Jonathan Brodsky, managing director and portfolio manager at Advisory Research Inc., a $6.5 billion asset management firm.
Mr. Brodsky, who co-manages two European-focused funds along with Marco Priani, cites Netherlands-based Unilever PLC (UL) as an example of the kind of companies that might be missed by U.S. investors.
The diversified consumer goods company, which has a 4%
dividend yield, generates more than half its sales in the emerging markets.
At Evermore Global Advisors LLC, a boutique shop with $78 million under management, chief executive and chief investment officer David Marcus is relishing the negative attitude toward Europe.
“We like to go where people hate things, and a big crisis is where you can get the best opportunities,” he said.
“You have to look past the headlines, because too many people are taking the mindset that Europe sucks and it's going to fall into the ocean,” Mr. Marcus said. “But as investors have flocked out of Europe, we picked through the rubble.”
Some of Mr. Marcus' favorites are Spain's Grupo Prisa SA (PRIS) and Italy's Fiat SpA. (FIATY.PK).
Through June, shares of Prisa, a diversified-media company, were up 16%.
Shares of Fiat, the automaker that has taken an ownership stake in Chrysler Group LLC, were up 12.4% over the same period.
Both companies are undergoing the streamlining that is increasingly popular across Europe, according to Mr. Marcus.
“A lot of companies in Europe are trying to take advantage of a crisis to reform and restructure, and push back on the unions,” he said.
Part of the evolution taking place in corporate boardrooms involves a shorter-term perspective and a more shareholder-friendly attitude.
Although companies in the United States sometimes are accused of focusing only on the next couple of years, European companies have built a reputation for looking out 20 or 30 years, which hasn't sat well with shareholders.
“European companies are taking a page out of the American book in terms of communicating with shareholders,” said Bill Stormont, a portfolio manager at Henderson Global.
“Historically, communication with shareholders wasn't very good in Europe and you wondered why you even bothered talking to management,” he said. “But there's been a cultural shift in terms of how the companies face the market and understand the market, and that means a shift in attitudes.”
And companies are never too old and established to change, according to Mr. Marcus, who pointed out the effort to streamline operations at Siemens AG, a 164-year-old engineering conglomerate based in Munich.
“Of course, for every company like Siemens that gets it, there are a dozen other companies that say they're 200 years old and that the world will come back to their way of thinking. Companies like Siemens will end up eating their lunch,” Mr. Marcus said.
“Nobody ever thought Siemens could compete with a company like [General Electric Co.], but they're doing it,” he said.
Questions, observations, stock tips? E-mail Jeff Benjamin at [email protected].
