Carmignac’s Heininger highlights disruption in European equities
It is fair to say Europe is not without its troubles. While we have avoided a melt-down of the financial system and a break-up of the eurozone, we are still in a structural growth crisis. With the disruptive, structural shift away from the old economy towards the new economy, our European footprint in technology is underwhelming, particularly in the large-cap space. While we have no major, disruptive companies in Europe on a par with Google, Amazon and Netflix, we have plenty of old economy champions that are feeling the cold winds of disruption caused by digitization & the change of consumer behaviour.
Against this backdrop, investors need to look for the truly innovative, visionary companies that can grow in a low-growth world and proactively adapt so as to benefit from a changing environment. Given this is a zero-sum game, and the fact that there are usually only few disrupters and many more disrupted businesses, being able to go both long and short is arguably more important today than ever before.
One sector which has been transformed by disruption is the retail space. Retail is no longer a brick and mortar business and the digital inflection point is imminent, for instance, results of a recent survey show only 6% of respondents claim to do all their shopping in store. Asos is a prime example of a disruptive business model, hence why the company is one of the fastest sales and EPS growth stories within EU retail. Despite lower than expected sales for 2018 Asos is, and indeed will continue to be a strong player in the European equity market thanks to its consumer centric business plan and commitment to reinvesting in future growth.
Another industry which lends itself to innovation is healthcare, and the search for asymmetric risk-reward and long-term winners leads us at Carmignac to make biotechnology stocks a larger component of our core holdings. In particular, investors should be excited about the opportunity presented by Morphosys, a fast-growing biotech stock. The company addresses unmet medical needs through science and technology developments, with the non-cyclical aspect of the wider sector adding extra appeal.
Even as the rate of economic growth slows, the outlook for investing in European equities (particularly those with disruptive business models) remains positive. The increasing number of European companies embracing technological disruption and innovation prove European equities are as relevant as ever. Exposure to companies offering a market-leading product, a huge addressable and underpenetrated market, and a management team strong enough to leverage the opportunities will prove very fruitful for investors in the eurozone.
Malte Heininger (pictured) is portfolio manager of Carmignac’s Long-Short European Equities fund.