Europe's investment markets are wallowing in an unprecedented level of support from the European Central Bank (ECB). They are being cossetted by a massive €1.7 trillion QE programme, much of which is likely to find its way into stock markets and raise share prices.
Negative interest rates are also encouraging banks to invest and the ECB is committed to buying up the debt of local companies. While most economists don’t expect ECB president Mario Draghi to announce more help at the bank’s meeting on Thursday, the range of market-boosting measures already in place should mean the best European companies are able to thrive.
Here, fund managers share four of their favourites.
Global liquor company Campari makes the eponymous spirit but also owns a stable of 50 drinks brands covering everything from whisky and vodka to ouzo and Frangelico. Best-selling brands include Wild Turkey bourbon, Skyy vodka and orange-coloured spirit Aperol. The company’s share price has risen 20 per cent in the last 12 months compared to 4 per cent from the Stoxx Europe 600 Euro TR index in sterling terms.
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As an investment Campari is similar to Nestle, says Mark Nichols, manager of the Threadneedle European Select fund. Its brands have “predictability and longevity”.
“This is not the kind of stock you would own for a couple of months. You would own it for five, 10 years and it would grow,” he says.
“We can talk about Campari’s earnings which are growing at 5 per cent a year. But in the end, the strength Campari has is the ability to create a consumer brand and products that have a resonance with people in the real world.”
The floodgates have opened to negative headlines around the Italian economy and its troubled banks in recent weeks.
The problems mostly revolve around the level of non-performing loans (bad debt, in other words), which some of the big banks are saddled with.
But Italy is home to 250 banks and 350 co-operative banks, and not all of these are in trouble.
FinecoBank is a new player, founded in 1999 with the aim of disrupting the incumbents. It’s grown rapidly and floated in 2004. Fineco is a pure retail bank and one of the big differences is that it doesn’t have branches, as the costs of offering transactional banking and all the cash handling that goes along with it – not to mention the fortress-like security – are huge. Instead it has “financial shops” where people can speak to staff and get help with online banking.
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“It’s an interesting business, it’s a disrupter, and it’s the lowest cost in the market,” says Nichols. “Fineco should win in an environment where the other banks are becoming more cost-constrained and facing downwards pressure.”
A weak Italian economy shouldn’t be a deterrent to investing in the country entirely, as there are still companies able to defy the negativity coming from the banks, says Ian Ormiston, manager of the Old Mutual Europe ex-UK Smaller Companies fund.
Marr is a domestic food distribution company serving hotels and restaurants throughout Italy, which is also the Eurozone’s third largest economy. So the scale of the market for Marr is huge, in a country where food is central and tourists love to visit. It has “plenty of scope for further organic expansion”, he says.
“Despite Italy’s lost decade of economic stagnation, Marr has grown rapidly and returned a huge amount of cash to shareholders, which has led to great returns in the last decade.” For investors, Marr pays out a dividend yield of close to 4 per cent. “It can reward investors who are willing to look beyond the gloomy country-level headlines,” Ormiston adds.
Read more: Five of the best big-name European stocks
Another country where uncertainty is clouding the view is Spain, where two general elections this year have so far failed to deliver a new government.
Private security company Prosegur provides clients with armoured vans, cyber security and manned guarding services in two dozen countries around the world. It’s listed in Madrid, but is diversified away from the Spanish economy.
It’s a very “high quality, high return business”, says Ormiston. He spied the company a while ago but held off from investing until this year until he was certain that Argentina, a key market for Prosegur, was normalising its relations with the rest of the world.
“The company has not just survived but thrived in tough economic conditions, and should perform well in the next few years as its European business strengthens and its fast growing alarms business approaches profit maturity.”