March 2022 saw the launch of a new fund to provide investors with a portfolio of attractive and well managed European companies, offering above-average growth potential. The SVS Dowgate Wealth European Growth Fund focuses on smaller-capitalised, under-researched companies with valuations that do not reflect their long-term growth potential.
Overlooked
There are several reasons why investors have overlooked Europe when looking overseas. From a top-down perspective, Europe has faced some daunting issues stemming from the Eurozone debt crisis, ongoing political and financial stability issues, energy policy, and regional security. Europe has typically offered lower levels of economic growth than the developing markets of Asia and fewer global technology winners than North America. Furthermore, Europe’s stock markets tend to be dominated by slow-moving mega-cap companies in mature sectors with a preponderance of banking and insurance companies.
Different View
However, the SVS Dowgate Wealth European Fund, headed by seasoned European investor Will Searle, has a different perspective. Europe has much to offer through the lens of a bottom-up view. Obscured by the 700 mega and large-cap stocks, each followed by between 10 and 20 analysts, sit some 3,500 mid, small and micro-cap stocks, most of which have only one research analyst. This under-researched universe is an ideal Dowgate Wealth hunting ground. With an experienced eye, Will leads the Dowgate team to pursue tomorrow’s global leaders in niche markets. These European companies are often family-owned and operated or founder-led, with many trading at attractive valuations. Indeed, over the past five years, Europe has seen nearly 1,000 companies deliver more than 100% growth and about 60 more than 1,000%; 3.5 times and over 5 times respectively greater than the number in the UK, over the same period.
Experience
Dowgate Wealth is a new name with a rich pedigree of investment experience. Will Searle, a qualified CFA, has 11 years of investment experience and, like most of the Dowgate Wealth team, spent his formative years at Hargreave Hale (later Canaccord Genuity Wealth). In particular, Will developed his European investment experience as Assistant and then Deputy Fund Manager on the Marlborough European Special Situations Fund from 2015 to 2021. In this period, Searle contributed to the significant outperformance achieved relative to its benchmark. The team supporting Will at Dowgate has a collective 430 years of investment experience in all types of economic and financial conditions. Will has worked alongside most of his fellow Dowgate team members for over a decade.
Approach
Will’s bottom-up approach extends the Dowgate team’s focus on quality growth companies with a solid management ethic. His rigorous research approach involves meeting managers in person and identifying global leaders in attractive niche markets, many of whom have meaningful investment skin in the game. This approach also allows Will to curate a well-diversified portfolio without being tied to any specific country or sector. By avoiding the trap of index tracking, the fund can focus on businesses that often defy conventional categorisation. From a universe of over 4 000 companies, Will has a watch list of 250 names and typically holds between 60 and 70 companies. This focus allows for long term growth while simultaneously delivering the benefits of portfolio diversification.
Process
The core Dowgate investment pillars are good management, growth prospects, and undervaluation. In Searle, the SVS Dowgate Wealth European Growth Fund has an ideal stock picker to pursue these objectives in Europe. In the diverse universe of European smaller companies lurk opportunities to invest in passionate and committed management teams with innovative products and sustainable earnings and cashflows, all at attractive valuations. These companies are typically not household names and would be difficult for most private investors to access. Examples include Swedish telecoms software provider Enea, Nordic kitchen manufacturer TCM and French-based global leader in LNG handling equipment, GTT.
Timing
European companies are beginning to get noticed by investors again. “Valuations have come down quite significantly, and we have not seen these levels in European stocks since 2020,” says Searle, “it’s a good time to identify quality companies that will be the future market leaders. The environment has been challenging in Europe recently. However, many of these companies have excellent managers who are coming up with solutions to these challenges”.
Written by Jeremy McKeown
