Emma Wall: Hello and welcome to the Morningstar series Why Should I Invest With You? I'm Emma Wall and here with me today is Ian Ormiston, Manager of the Ignis European Smaller Companies Fund.
Hello Ian.
Ian Ormiston: Good morning.
Wall: So, there's been a recent survey with financial advisors showing that they are now bullish on European equities. Is this the right time to be going in?
Ormiston: It’s a good time to be going in, because actually one of the big risks we've seen to European investing has been the euro. For the last 18 months the risks around that have been basically dissipating.
Wall: But you however have been saying that not all European economies are created equally. There are some fantastic stories there and there are still some worries.
Ormiston: This is true I mean the way we invest is actually bottom up. So we are driven by the companies and the stocks rather than actually buy the countries. But that does lead us to quite big differences in the way we invest. And the types of companies we find in different markets.
So actually if we look at two of the emerging countries that are coming back from the crisis, Ireland and Italy. Very, very different experiences, we find great opportunity in Ireland, good valuations, good exposures. They are exposed to the right places. They are exposed to the U.K., they are exposed to the U.S.
Whereas Italy it's a little bit different. The economy hasn’t really had the structural reforms. The mix of companies is very different, the types of management teams we meet not quite as good, not as attractive. So while many people are looking to do macro-investing. They're looking to invest in the convergence really back towards a solid Europe. We would say be a bit cautious not all these countries that have been in crisis, have either recovered or have the same prospects coming back.
Wall: That’s quite a different view to some of your peers are taking. They are saying that Spain and Italy present some fantastic opportunities. And particularly in the Spanish banking side which has had some consolidation. Are you saying than perhaps not all is what it seems.
Ormiston: I think where our investors are using the small cap space is slightly different to large cap. So both in Spain and Italy the large cap the banking sector absolutely far and the restructuring has been done. The capital raising has been done and they are big beneficiaries of the big move we've seen in spreads between the core and the periphery.
Down in small cap line is a bit different actually in the banking sectors particularly the problems are more intense. The companies are local companies their lack of capsule is deeper and so I would differentiate between large and small, but also in terms of reform. I think the shadow in terms of financial crisis always lies long. It lies longer than I think certainly in Italy, to some extent in Spain, but lesser in Ireland. Ireland took its medicine very hard and that’s why we'll prefer that market.
Wall: Smaller companies than do have that sort of extra risk element. Are you saying perhaps that you need to wait until a country is more stable than you would if you were investing in a larger cap?
Ormiston: I think they are much more domestic. So actually you want some good domestic growth really and my fund for instance we are talking about 90% of exposure is to Europe in terms of sales for the companies. So in large caps less important, 50% typically is overseas ex-Europe. You really do need, your domestic companies work well and your exposure outside your domestic economy to be the right ones and that’s why we prefer some of the northern to the southern ones.
Wall: Other than Ireland then what's been sort of success story for you to think.
Ormiston: German industrials have been absolutely fantastic. They continue to be well run businesses. They have got the right exposures. The Nordic region is full of very good companies. Why we look for small companies out there; they’re immature, they need to come into the capital market because they need to grow, but they generally have the characteristics of successful winning long term stories. The Nordic market is a great place for that. Lots of these future large companies come through it's not just a place where people look to sell their companies.
Wall: Ian, thank you very much.
Ormiston: It’s pleasure.
Wall: This is Emma Wall from Morningstar. Thank you for watching.
