Scots Funds Hunt Stocks to Beat Pessimism Lasting Into 2013
Scotland’s biggest investors are scouring Europe for stocks that can prosper in the economic slump they reckon won’t end anytime soon.
That’s made Amadeus IT Holding SA (AMS), a Spanish operator of travel booking systems, goods inspector Bureau Veritas SA (BVI) and Gemalto NV (GTO), a digital security firm based in Paris, picks for 2013, according to money managers helping oversee a combined 492 billion pounds ($794 billion).
“You have got years ahead of zero or little growth,” Ben Ritchie, a fund manager at Aberdeen Asset Management Plc, Scotland’s largest money manager, said in an interview two days ago. “The strong companies will continue to get stronger and the weak businesses will continue to get weaker.”
The euro-area economy went into recession in the third quarter for the second time in four years after the regional debt crisis led to five countries requiring international aid. Europe’s economic malaise is deepening as governments impose budget cuts to narrow their deficits.
The European Central Bank cut its forecasts for the region on Dec. 6, saying it will shrink 0.3 percent next year, from an earlier estimate of 0.5 percent growth.
“We have tended to prioritize companies that can grow their businesses irrespective of the macroeconomic environment,” Greig Bryson, who manages European Stocks at Scottish Widows Investment Partnership in Edinburgh, said in an interview. “That focus on growth has worked very well.”
That approach prompted Scottish Widows Investment to invest in health-care companies such as Essilor International SA (EI) and Fresenius Medical Care AG (FME) along with Bureau Veritas, the world’s second-largest goods-inspection company, Bryson said.
Bureau Veritas, which has gained 52 percent so far this year, “is just a play on increasing international trade and increasing regulation,” said Bryson, whose company is part of Lloyds Banking Group and oversaw 142 billion pounds as of Sept. 30, with 6.5 billion pounds of that in European stocks.
Essilor has risen 42 percent in the year to date while Fresenius has gained 2 percent.
The firm has less invested in European banks than compared with benchmarks as lenders in the region haven’t yet started the process of recognizing bad debts, in contrast to the U.S. and the U.K., Bryson said. In financial services, the fund manager added to its holdings in insurers Allianz SE (ALV) and AXA SA.
Europe has provided some of the best stock performances of 2012 even as investors speculated about the possible disintegration of the euro, Mikhail Zverev, head of global equities at Edinburgh-based Standard Life Investments, which runs 163 billion pounds, said in an e-mailed statement.
Since Sept. 5, the day before ECB President Mario Draghi unveiled the Outright Monetary Transactions program, the Stoxx Europe 600 Index has risen 5.3 percent through yesterday, faster than the 4.8 percent gain in FTSE 100 Index in the U.K. or the 1.1 percent rise in the Standard & Poor’s 500 Index (SPX) in the U.S.
“While investors have fretted about euro-zone break-up, the region has generated some of the most remarkable stock stories of 2012,” Zverev said on Dec. 7.
Gemalto, a Paris-based digital security firm that makes semiconductors and software enabling products such as electronic passports and chip and pin bank cards, is one example, Zverev said. Gemalto, which Standard Life bought earlier this year, has almost doubled in value in 2012, compared with a 15 percent gain in the CAC All-Share Index.
Zverev also highlighted CFAO SA (CFAOT), a Sevres, France-based auto and drugs distributor that rose 41 percent in 2012 ahead of an Aug. 28 offer from Toyota Tsusho Corp., the trading arm of Japan’s largest carmaker. Standard Life has since sold the stock. He also named Spanish health-care company Grifols SA (GRF), whose shares have almost doubled this year.
Both are examples of where strong company specifics prevailed over sentiment toward the economy, he said.
Aberdeen (ADN), which is headquartered in the northeast Scottish city of the same name, oversaw 187 billion pounds as of Sept. 30. It bought Amadeus, a Madrid-based maker of software for airlines. The stock has jumped 46 percent so far in 2012.
More recently, it bought Svenska Handelsbanken AB (SHBA), Sweden’s second-largest bank by market value, as well as adding to holdings in Swedish Match AB (SWMA), a maker of snuff, and Kongsberg Gruppen ASA (KOG), the Norwegian developer of a missile for the F-35 fighter aircraft, said Ritchie.
Handelsbanken is up 29 percent this year, while Swedish Match is down 7.6 percent and Kongsberg is almost unchanged. Aberdeen added to its Swedish Match holding following a decline of 13 percent over two days at the end of October when the company said fourth-quarter operating profit would be lower than a year earlier, Ritchie said.
“We have not bought or sold as much this year as we thought,” he said from his office in London. “We expected this year to be a bit tougher than it was.”
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