Emma Wall: Hello and welcome to the Morningstar Series, Why Should I Invest with You. I am Emma Wall and here with today is Alistair Wittet, Manager of the Comgest Growth Europe Fund.
Hello, Alistair.
Alistair Wittet: Good morning.
Wall: So, there is so much going on in Europe. It's difficult to know where to start, but with all that macro noise, one of your peers who also runs European equities said that he expects the European equity markets to go sideways this year, because markets don't like uncertainty and there is so much uncertainty out there. What do you say to that?
Wittet: I think certainly economically, there is huge amounts of uncertainty, and I think that's partly why you are seeing the ECB engage in a massive quantitative easing programme.
I think politically there is huge amount of uncertainty for Spain and France. You're seeing the political debate being pulled by the far left and the far rights, and essentially taking the debate away from I think much more important, from an investment perspective, economic questions.
But I think, even in that environment, there are number of – at least there are many pockets of growth and certainly for our fund for example, we've found a number of industries, and mega trends like the growth in diabetes care globally which has been growing double-digit now for number of years and will continue to, and this is driven by factors which are fairly irrelevant from the economy.
So things like aging populations, emerging markets changing their eating habits, et cetera. So I think even in a no-growth environment, you can find pockets of growth, which means that even in a difficult economic environment for Europe, you can still find good investments.
Wall: Having said that though, when the market gets a shock, economic or political and it moves down, it drags good quality companies down with it. So how do you avoid being sort of dragged down by slump or is it about just accepting that 2015 is going to be a volatile year?
Wittet: I think you have to accept it's volatile. When you've seen the market rise 20% year-to-date, you got to think there is a certain amount of irrationality maybe in the markets movements. As a fund manager, I think you have to take a longer view and you have to accept that there will be period, maybe a year, maybe two years which are more difficult.
But actually, in the past for us, that actually creates some very interesting buying opportunity because you find these fantastic businesses, which really shouldn't be marked down on the basis of economic volatility and you can buy them at very good prices. So I think for a long-term investor, it's not necessarily a problem.
Wall: Let's talk a little bit more about thematics. You mentioned diabetes, what are sort of sectors are you finding opportunities in?
Wittet: There are plenty, I mean air traffic is a good example. We've been seeing globally air traffic growing at about 5% per year for the past two decades. This year that's actually accelerating to 7% and there are number of companies which are nicely exposed to that. There is Amadeus, which is a booking platform, if you like for airlines.
They've been experiencing high single-digit growth, thanks to that. But there are other sectors for example the online market, which has been growing extremely strongly. Historically for the last five years, it's being growing about 15% per year and ViA Card one of our holdings is a payment processor for the – on the part of retailers and they have been posting 20% growth for the last couple of years.
Wall: Both of those will benefit from the weak euro. Is that something you are intentionally doing?
Wittet: Absolutely not. So our investment style is as much as possible to buy businesses which are disconnected from exogenous factors be that the economy, be that political and indeed across currencies. But obviously if you are setting something in dollars, and the dollar has gone up against the euro, you will benefit from that. I'd be certainly more vary about buying businesses which have what we call transactional exposure which is to say that they produce in euros and they sell in dollars.
For example the auto manufacturers which incidentally have done very well this year I think on the back of that, because even though they do well this year, tomorrow or next year, when the euro strengthens and dollar weakens, their fundamental business model would be at risk. As much as possible, we try to avoid that.
Wall: So, you like to buy companies that do all of its dealings in the same currency?
Wittet: Absolutely.
Wall: With that in mind, what you feel about Greece, because we don't know Greece's currency will be in the future. Do you have any exposure to Greece at all?
Wittet: Fortunately, we have no exposure to Greece, whatsoever. I think from a – what's the risk on the rest of Europe, I think that has been significantly de-risked over the last few years. So, if we had this discussion five years ago, the banks in Europe had significant exposure to Greece and therefore, a great default would have an impact on the whole banking system and obviously we know the effects of that.
Today the banks have largely either written down or offloaded their debt exposure and it's now basically in the hands of ECB and IMF which – they get much more creditworthy holders of that debt, than the banks in Europe.
Wall: Alistair, thank you very much.
Wittet: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
