In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This time our interviewee is Stefan Gries, manager of the Morningstar 5-star rated BlackRock Greater Europe Investment Trust (BRGE).
Which Sector Shows The Biggest Opportunities in 2022?
In Europe, a lot of fiscal stimulus spend is yet to materialise. This spending is supportive for a number of leading businesses in Europe, that are addressing digitisation, the improvement of energy efficiency of buildings, renewable fuels or companies that are enabling the shift towards electric vehicles. These are all trends that we think selective European companies can benefit from for years to come. In the near term, we think that there is potential for the civil aerospace and maintenance market to recover strongly as air travel comes back in 2022. Airline capex is estimated to move significantly higher to prepare fleets for the recovery.
What's The Biggest Economic Risk Today?
As we move into 2022, some of the strong macro tailwinds seen in 2021 are likely to normalise. We monitor monetary policy closely as there is risk of central banks tightening financial conditions too quickly in developed market economies that should start slowing slightly towards the end of this year. We expect 2022 to be an environment where it pays to take an active approach and be highly selective in your stock picking.
Selectivity has become even more important in the context of the tragic events unfolding in Ukraine which are resulting in continued increases in energy prices, sanctions on Russia from the West, and agricultural commodity prices moving sharply higher. This will not only hurt consumer spending across Europe but could also lead to a loss of business confidence with potential new investment spend being put on hold. Therefore, a selective approach to the region is key.
Describe Your Investment Strategy
There are more than 2000 listed companies in our investment universe and we look to identify the 35-40 most compelling investment opportunities that Europe has to offer. That means that we build a relatively concentrated, high conviction portfolio that invests in some of the best businesses listed in our region. Companies we own are typically run by exceptional management teams with a clearly defined strategy for value creation. These companies earn a high return on capital and they are highly cash generative which gives them the opportunity to re-invest in attractive growth projects at high returns.
We think the recipe for wealth creation is really very simple – it requires three key ingredients – high returns, growth and time and that means once we have identified a winning franchise in Europe we like to create large positions and run them for years.
Which Investor Do You Admire?
Reed Hastings, founder and CEO of Netflix, who understood that to build a truly exceptional business you need to attract and pay for the best talent and instil a culture in which employees are empowered to take value creating decisions. For us, company culture and value creation are intrinsically interlinked.
Name Your Favourite "Forever Stock"
We own a number of businesses we expect to own for a very long time. These tend to be exceptionally well managed businesses with dominant positions in end markets that lend themselves to multi-year value creation. That being said, it is important not to "fall in love" with a stock. Our process is geared to keep re-assessing existing portfolio holdings, to gain deeper and deeper insights but also to be prepared to change should the fundamentals require us to do so.
What Would You Never Invest In?
Each year investors are presented with a strong macro narrative that is asking them to change the composition of their portfolios, the beginning of 2022 is no different in that regard. Our minimum holding period for a position is three-to-five years and we therefore like to clearly distinguish between what we consider tactical trading in shares versus owning businesses. We don’t chase macro narratives and don’t engage in tactical trades, we like to own businesses for the long term.
Growth or Value?
Our view is that unless a business has opportunities to deploy capital in growth projects at attractive returns there will be no value creation over time. In our opinion, the growth vs value discussion is an oversimplification that neglects sufficient analysis of the income streams you are buying. Many of the "value" stocks in Europe operate in capital intensive industries that face challenges like declining sales, falling returns and often have newly emerging competitors disrupting their respective profit pools. We aim not to have a prescriptive style bias as all of our investment decisions are informed by bottom up single stock research.
House or Pension?
House because I’ve got three children!
Crypto: Brilliant or Bad?
Fascinating topic. In recent years, there has been considerable progress in terms of the number and quality of institutional-grade, regulated service providers offering market infrastructure for bitcoin. Blackrock does not currently hold the same view for other crypto assets.
What Can be Done to Increase Diversity in Fund Management?
Diversity, equity and Inclusion are a core focus for us and we are keen to recruit, develop and retain the best talent. Across our Fundamental Equity platform we run an Investing in Investors programme which aims to train and develop investors from more diverse backgrounds and experiences. While we have made good progress over the last few years, we recognize that this is a journey and that there is still a lot of work to be done.
Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?
Our European equity team conducts around 1,500 company meetings per year. These conversations often centre around areas that we think need improvement. In terms of engagement and voting we also work closely with our corporate stewardship team who evaluate all stakeholder policies, including good governance and remuneration. We have had a number of successes around disclosure and transparency as well as aligning remuneration with strategic outcomes.
What's The Best Bit of Advice You’ve Ever Been Given?
Never take anything for granted and if you want to be a successful investor you need to be intellectually curious and develop an ability to think for yourself.
What Would You Be if You Weren’t a Fund Manager?
Probably a history teacher!
