German market good for equity investors, says Swiss & Global

Germany’s growing dependence on exports to emerging markets and growing domestic consumption are providing fertile ground for Swiss & Global Asset Management’s Germany equity fund manager – but not necessarily where you might expect.

Germany’s growing dependence on exports to emerging markets and growing domestic consumption are providing fertile ground for Swiss & Global Asset Management’s Germany equity fund manager – but not necessarily where you might expect. 

The traditional powerhouses of German industry – companies like Siemens – are not necessarily top of the buy-list of Oliver Maslowski, manager of the Julius Baer EF German Value fund. 

Siemens is indeed a leading global electronics firm but it is heavily dependent on the Euro, as it generates 55% of its revenue from Europe.

“We prefer to go for interesting less well-known names, such as for example Schuler AG, which was overtaken last year by Andritz at a low multiple,” said Maslowski.

He sees one advantage of the German market as it having many market-leading niche players, whose valuations are low for the time being. He remains on the lookout for such names, to add to the portfolio.

This does not make his fund heavy in mid-caps, though, where he caps exposure at 5%.

He believes mid-sized companies remain too volatile for large bets. “It only makes sense to go into mid-caps if you see a trigger event, otherwise it’s too risky at the moment because fluctuations are too heavy.”

A recently published report by Deutsche Bank suggests that mid-caps included in the MDAX index may outperform the large-caps in the DAX index, as they have more diversified export sales across a better spread of geographies than those tapped by the large global firms.

With just 1% to 2% in small-caps, this leaves the majority of Maslowski’s holdings in the large cap segment.

One German market sector best known for its large, multi-national firms is automotives, which has particularly profited from demand from emerging middle classes in countries like China.

Germany’s exports to China last year of €65bn were more than double the volume in 2007, and UniCredit estimates, without such expansion German GDP last year would have been 0.5 percentage points weaker than the 3% posted.

 

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