region offers many promising niche firms as well as big world brands
The vast diversity of companies available across Europe has created a wealth of opportunity, according to Gabrielle Boyle, manager of the Lazard European Alpha fund.
Boyle says Europe is home to a third of the big, well-known world brands. However, a number of promising niche companies also provide good investment opportunities.
She cited Novo Nordisk, the world's largest producer of insulin, which is benefiting from the growth in diabetes. Another is Schindler, the largest producer of escalators in the world, and a stock she has accumulated in the fund.
In choosing companies, Boyle said it is important to recognise the many challenges and threats.
For example, European companies are typically less shareholder friendly than those in the UK, with 40% operating without a one share equals one vote policy. Furthermore, there is no segregation of the chairman and chief executive officer and there are very few independent audit committees like in the UK.
It is really only at the stock level that opportunities can be identified. Stocks in similar sectors have delivered vastly different performances over the five years to 30 June, in euro terms.
Boyle said: "In the automobile sector, if you chose to ignore Porsche and opted for Fiat, it would have been a complete disaster. Porsche has gained 87.5% while Fiat's share price fell by 49.7% over that period. Similarly, among industrials, ACS posted a 210.2% gain while Alstom plummeted by 86.5%.
"Tiscali, in the technology sector, fell by 76.8% over the five-year period. But in the same sector, if you had chosen the boring franking machines by opting for Neopost, that would have been an excellent investment with a 213.6% gain."
Further examples from Boyle included DnBNOR in the banking sector, which gained 121.5% while BCP fell 32.8%. Among pharmaceutical stocks, Orion posted a 118.8% positive move over the period while Elan fell by 82.2%. And Telekom Austria made a 152% gain while France Telecom declined by 60.2%.
Boyle added: "Choosing the right stocks in the same space can make a lot of difference. Diversity at a stock level translates into diversity in returns."
Within Lazard European Alpha, Boyle is positive on the oil and gas, industrials, consumer good and healthcare sectors. Key underweight positions include basic materials, utilities, telecoms, financials and technology.
The fund contains 55 stocks. The top holdings include Novartis (4.92%), Total (4.16%) Unicredito Italiano (3.46%) Sanofi Aventis (3.44%) and Nestle (3.39%).
The A-rated fund is ranked 37 of 85 funds in the Europe ex UK sector over three years to 18 September, according to figures provided by Standard & Poor's. Over that period, the fund returned 61.9% compared to the sector average of 62%. key points
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