UK companies driving European stock market recovery
UK companies make up half of the top ten performers in Europe since the crisis
According to F&C Investments, half of the top ten performers in the FTSE All-World Developed Europe Index (the index) over the past five years were from the UK.
Companies including Shire, Whitbread and ITV appeared in the top five performing stocks in the index for the period, delivering 481.8%, 474.4% and 471.8% respectively. The index achieved 94.5% total returns over the five years, an annual average of 18.9%. UK companies comprise 32.4% of the index.
Recent figures show that the Eurozone remains in a low growth environment; although the UK is bucking this trend, other figures such as unemployment are less encouraging.
F&C Investments stated that the primary focus for long term investors should always be on buying businesses able to prosper no matter the economic conditions. By doing so, this helps to avoid losses in periods of weak stock market returns whilst retaining the ability to benefit from a recovery.
David Moss, fund manager for F&C European Equity said: “UK companies have played a prominent role in the European stock market recovery.
“However, this is less a reflection of the improved macro-economic conditions in the UK, than the quality of specific companies and the actions they have taken to weather the recession and position themselves well for the recovery.”
The top ten performing stocks in Europe, since 2009, were from a range of sectors – including automotive, healthcare and pharmaceuticals, leisure, media, financials, basic resources and aerospace and defense sectors.
This indicates that bottom-up stock picking has been key to providing returns during the period, rather than taking a sector-led approach. Valeo, the French automotive company, was the top performer in the index, delivering 648.2%. Northern European countries dominated the top performers, with other companies in the top ten performers being listed in Denmark, Sweden and Switzerland.
Moss added: “We are firm believers in the benefits of taking a bottom-up approach to stock-picking and in times of market uncertainty, this is even more important.
“These figures show that even during times of low economic growth there are companies that are able to defy these conditions and provide impressive returns. Although many of the best performing stocks of the last five years are those that have recovered from very weak performance prior to this period, this ignores poor historic returns. For example, Valeo fell from a high of €23.1 in 2008 to a low of €8.2 in 2009. European companies have seen strong performance in recent years and there are still many opportunities in the region, in the UK and further afield.”
Three stock picks from the F&C European equities team, across the region, include:
Glanbia: Up 442% since June 2009. Five years ago Glanbia was primarily an Irish company dominated by its dairy processing business. Through innovation and judicious use of capital, Glanbia has reduced its exposure to dairy processing, increased its free-float and established itself as a leader in the fast growing nutritional supplements market. It owns some of the top brands in the U.S. and controls other important parts of the value chain.
Handelsbanken: The management at Handelsbanken has concentrated on excelling in the core business of retail banking in Sweden and elsewhere, and has produced high returns, enabling growing dividends to shareholders. This is similar to Swedbank – a top performer – however, Handelsbanken has achieved this success without encountering some of the issues Swedbank has (particularly with regards to losses in its Baltic business). In the five years since the crisis, Swedbank has out-performed Handelsbaken. In any longer term period the roles are reversing, with Handelsbanken significantly out-performing Swedbank and the European banks sector. This illustrates that protecting investors’ capital in difficult times is the most important aspect in delivering long term returns.
Berendsen: This company is a UK business providing services such as the provision of work wear for businesses or linen for hospitals in the UK and Europe. Following a strategic review in 2010, management differentiated the businesses that had long-term growth potential and allocated capital accordingly. This focus has meant that Berendsen has been able to show consistently improving returns on capital, driving growth in both profits and dividends while considerably strengthening the balance sheet. F&C believes the business is now extremely well positioned for growth in the future.