European markets were incredibly cheap this time last year due to market weakness related to concerns around inflation and interest rates, exacerbated by fear about how the Ukrainian war would impact the European economy. We are now seeing some of this economic weakness confirmed with, for example, Germany in a technical recession and falling house prices in Sweden, but much of the bad news had already been discounted by the market.

We seek investments in growth and quality companies, and last year the market chose to forget about the long-term prospects of some of these businesses. We remained patient and retained our long-term focus. Europe has some great companies benefiting from powerful long-term structural themes and with attractive valuations, in my view.
Investing cycle
One of the biggest geopolitical themes right now is the “reshoring’’ of production, mainly moving production from China. European companies are very exposed to that trend — capital goods companies and semi-conductor equipment, for instance. We’ve got some incredibly good businesses in the capital goods space, and we’re seeing the start of a cycle of investment, as companies try and protect their production from geopolitical risk.

Couple that with the drive around the green economy, where European companies also excel, and that creates a powerful combination for those capital goods and semi-conductor equipment companies. It’s not a huge surprise to see those two sectors doing quite well.

We’re looking for the best businesses that are quoted in Europe. We are agnostic to both the sector and country they’re in. It’s all about each individual business’ competitive position, within their respective industries, and the health of their long-term growth prospects.
Smaller companies
We invest in both larger and smaller companies in Europe. By smaller companies, we mean between one billion euros and 10 billion euros in market capitalisation. While some people may associate small caps with higher risk, I would refute that. We are investing in businesses that are already established in their markets and are looking to expand their successful products more globally. These companies have attractive profit margins, proven business models and low levels of debt relative to their underlying cash flows. They may also be family-owned, a business model that has proved to be successful in Europe. They tend to come with a high level of responsibility around stakeholder value creation, a long-term vision and well thought-out investment plans. These attributes align with the core of our investment philosophy, which is about looking for a sustainable and high level of return on capital, a high level of pricing power, good levels of cash and stable ownership.

The value of active minds: independent thinking

 

A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

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