 By Lee Freeman-Shor, Portfolio Manager, Skandia Best Ideas Funds
"Bulls make money. Bears make money. Pigs? They get slaughtered”
Those were the words of fictional character Gordon Gekko in the 1987 film "Wall Street". In these times of uncertainty one thing investors are absolutely certain about is that investing in the PIIGS (that is Portugal, Ireland, Italy, Greece and Spain), is a bad idea - as Gordon said "They get slaughtered".
In fact, even amongst Southern European countries there is a desire to be distanced from each other and not to be seen as the rogue state causing Europe's woes. In 2010 Ireland was the portrayed as the rogue. Even George Papaconstantinou, the Greek Finance minister, said on the 8th November, 2010, "Greece is not Ireland."
Today Greece is portrayed as the rogue and the PIIGS as a whole are seen as areas to avoid much like the bubonic plague. Today investors, politicians and Joe public are all suffering from a massive dose of representative bias which could ultimately cause them to make poor decisions. This bias simply means people stereotype things and right now any stock listed on an exchange in the PIIGS is seen as "bad".
Investors often ask if my European Best Ideas Fund has any exposure to the PIIGS. They see exposure to stocks listed in such countries as a "massive risk" with an outcome that can only be bad and just like a person that is ill goes to the doctor to seek reassurance that they are fine, they seek those calming words from me that my fund has no such exposure - and they would also like to hear a retort of "do I look crazy?".
Sadly I disappoint them by telling them I do have a handful of stocks. In Spain I invest in a company called Industria de Diseno Textil (otherwise known as Indetex). Indetex is owner of clothing brands Zara and Massimo Dutti both of which are global brands. Only 27% of its revenues comes from Spain and it has managed to grow it revenues every year despite crisis in Europe. And while the Spanish stock market has fallen off a cliff this year Indetex is up 5%.
In Portugal I invest in a company called Jeronimo Martins which operates supermarkets and cash and carry's and has 60% of its sales coming from Poland - sales which have grown every year despite the crisis in Portugal and, just like Indetex, while the Portuguese stock market has struggled year to date, Jeronimo is up 9% this year.
In Italy I invest in Pirelli, the world famous tyre manufacturer. It offers an attractive dividend of 3.5%, is cheap (trades at 7x P/E) and only has 8% of its sales coming from Italy. In fact around 60% of its sales come from outside of Europe with a staggering 34% coming from Latin America. The stock is up 22% this year.
Today's markets offer great investment opportunities in the PIIGS if you are willing to look through the noise and roll your sleeves up and do some good old fashioned stock picking - or invest in a fund like European Best Ideas that does just that.
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