Stock selection opportunities across Germany, France, Austria and the Netherlands continue to offer value for European small cap equity investors, according to Baring Asset Management, the international investment firm. The third quarter of this year has seen European small caps perform strongly as markets reacted positively to theannouncement of the European Central Bank’s bond buying programme and subsequent approval of the European Stability Mechanism by the German constitutional court. The Baring Europe Select Trust has returned 9.1% over the three months to 30th September 2012 compared to the HSBC Smaller Companies European (Ex UK) index that returned 7.7%.
Nick Williams, Investment Manager, Baring Europe Select Trust comments, “At a country level, stock selection was the principal driver of outperformance in Q3. This was particularly the case in Germany where our exposure to speciality chemicals group Lanxess and biotechnology firm MorphoSys, for instance,contributed significantly to returns.”
Barings notes that selection in the Netherlands and Austria were further sources of positive attribution with Wolters Kluwer, the information services and publishing company, and components manufacturer SchoellerBleckmann Oilfield Equipment the standoutperformers.
Nick Williams continues,“In terms of sectors, a focus on Business Providers and Technology firms contributed positive returns in the period. The Basic Materials sector also added value owing to strong performance from Lanxess and CGGVeritas.”
While Barings remains focused on stock selection opportunities in core markets such as Germany and France, the firm is mindful of opportunities across the whole of the region. The recent performance of Italian Financials firms Banca Generali and Azimut Holdings highlights that it is possible for individual companies in the periphery to shine and prosper if they offer competitive products, valuable services and deliver consistently impressive operational performance.
Nick Williams concludes,“Looking ahead, we believe that the Financials sector should also benefit from the recent policy moves. This is particularly the case in Switzerland, where well capitalised banks and insurers, such as Baloise, enjoy exposure to a resilient domestic economy despite valuations declining with the rest of Europe.
“Elsewhere, we believe that increased market confidence and a more benign environment have the potential to lead to a recovery in more economically-sensitive areas such as Industrials, particularly among firms which operate in the core and enjoy exposure to relatively robust demand from the US and the emerging markets.”
Year to date, the Baring Europe Select Trust has returned 17.4% (as at 30 September 2012) compared to HSBC Smaller Companies European (ex UK) index which returned 8.1% over the same period.
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