European Multi-Cap Fund – Q&A (April 2017)

Award-winning performance from Marlborough European Multi-Cap

David Walton, Manager of Marlborough European Multi-Cap, has earned two awards for the fund’s exceptional outperformance. He has been named top manager in the Equity, Europe ex-UK category of the inaugural Citywire UK Awards and the fund earned the title of best Europe ex-UK equity fund over three years in the 2017 Lipper Fund Awards.

Here David shares his views on Europe and explains the investment strategy that has made the fund a top performer.

What is the outlook for European equities?

“There are certainly reasons to be vigilant. The political situation can definitely be described as fluid, though that’s not necessarily a new development, of course.

“The economic environment remains broadly supportive for European companies. The problematic economies of southern Europe continue to improve, while the stronger northern European economies remain healthy. So we certainly believe there are attractive opportunities for the selective investor.

“Rising equity markets have also encouraged an increase in the number of Initial Public Offerings (IPOs) and secondary share sales by venture capital funds, but again we remain selective in our approach to these.”

Where are you seeing particular opportunities?

“A number of our Italian holdings – both small caps and their larger counterparts – have performed well recently as a consequence of the introduction of a new ISA-like tax-efficient saving scheme there, which encourages investment in Italian companies.

“The European banking sector, which had looked largely unattractive for some time, is now looking more interesting, with the planned recapitalisation of Italy’s banks, the Fed’s interest rate rises – with more expected to follow – and speculation about eventual monetary tightening. We’ve bought a holding in well-capitalised Italian bank Credem and added to our position in Norwegian challenger bank Skandiabanken. Both have quality management and re growing their loan books faster than their peers, while having below average bad debt liabilities.

“We’re also seeing opportunities in housebuilders. JM in Sweden is in a strong position to reap the benefits of population growth and increasing demand for housing in greater Stockholm. In France, Kaufman & Broad is benefiting from a growth in demand from first-time buyers based on improving consumer confidence and low interest rates.”

How would you summarise your investment strategy?

“We’re stockpickers first and foremost, looking for undervalued companies with above-average growth potential and high-calibre management.

“Although we invest across the market-cap spectrum, we have a bias to small and micro-cap companies because we believe smaller companies with strong growth potential are often overlooked by investors simply because of their size.

“What we’re looking for are relatively undiscovered growth companies, in which we can invest for the long term.

“To find them, we meet a wide variety of companies to identify the most promising opportunities based on our criteria. We then monitor existing and potential holdings, with regular meetings with management.

“To help manage risk we hold a diversified portfolio of more than 100 stocks, with no stock representing more than 2% of the fund’s net asset value at purchase.”

What do you believe has driven the outperformance of the fund since your appointment as manager in October 2013?

“The key thing that sets us apart is our approach of looking for less well-known, smaller, growth companies that have been undervalued by the wider market.

“Since it’s a multi-cap fund, we balance this exposure to small and micro-caps with some holdings in mid and large-cap companies that we’ve identified as having good long-term growth prospects. We believe this is a sensible way of helping to mitigate risk.”

Could you give examples of companies that have performed particularly strongly for you?

“We’ve held the German industrial group MBB for more than three years and over that period its share price has risen in the region of 400%. It’s a well-managed business that has bought other companies cheaply and managed them well. MBB has also reaped the benefits of the successful recent IPO of one of its subsidiary companies, Aumann, which makes equipment used in the production of electric cars, which is a growth area.

“Belgian company Jensen Group has been in the portfolio since I took the reins and the share price has more than doubled in that time. Jensen is one of the world’s leading manufacturers of industrial laundry equipment that’s used to service hotels, hospitals and nursing homes. We value stable, experienced management and the CEO, Jesper Jensen, represents exactly that – he’s the second generation of family management. The company has proved adept at developing innovative products, making sensible acquisitions and expanding its distribution reach.

“We’ve held French pharmaceutical group Ipsen for around two years and its share price too has doubled. The company produces best-in-class cancer treatment drugs.

“Companies like these are exactly the sort of relatively little-known businesses, with underappreciated growth potential, that we like to hold in the portfolio.”

Regulatory Information and Risk Warning

The past is not necessarily a guide to future performance. The value of investments and the income from them may fall as well as rise and you may not get back the amount you originally invested. Changes in exchange rates may cause the value of the fund to rise or fall. The Fund may use derivatives to protect the value of the Fund’s assets or to reduce the costs of investing, although this may not be achieved. It is not anticipated that the use of derivatives will have any significant effect on the risk profile of the Fund. The Fund invests in smaller companies which carry a higher degree of risk than larger companies. The shares of smaller companies may be less liquid and their performance more volatile over shorter time periods. You are required to read the Key Investor Information Document (KIID) before making an investment. The KIID and prospectus for all funds are available free of charge at or by calling 0808 145 2500. This document is provided for information purposes only and should not be interpreted as investment advice. This material is a communication to professional advisers only and should not be disclosed by such advisers to their customers or other non-professional individuals without first contacting Marlborough for permission to communicate this material. The information contained herein has been prepared from sources believed reliable but is not guaranteed and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situations or need of individual investors. Please note that for your protection telephone calls may be recorded.