Francesco Conte discusses how he and Jim Campbell add value to European Smaller Companies.
Francesco Conte, portfolio manager, JPMorgan European Smaller Companies Investment Trust.
We are part of a team of 47 European equity investment professionals here at J.P. Morgan Asset Management (JPMAM) and between the two of us, Jim Campbell and I have over half a century’s worth of experience investing in western European smaller companies. Countless meetings with management teams means we’re regularly travelling around all corners of Europe, from the most northern regions of Scandinavia through to the Southern European countries of Spain, Italy and Greece, Portugal and Ireland in the West and Germany in the East.
Our knowledge of the companies in our investment universe often dates back to when the companies first came to the stock market or, in some cases, when they were still private. We’ve seen these companies go through growth phases, economic downturns and even management errors. We’ve also lived and worked through the dot-com boom, the subsequent bust, the economic recovery that followed, the financial crisis as well as countless Eurozone travails. All of this has provided an invaluable learning experience which has fundamentally shaped our everyday investment decisions.
Being part of JPMAM gives us the access and resources to analyse the very best European smaller companies. When it comes to small cap investing, the value of active management comes to the fore given the much larger size of the investment universe versus large caps and the lower level of analyst coverage. We could conceivably invest in 1,000+ companies. Smaller companies tend to be less diversified and driven more largely by stock specific factors versus large caps that tend to trade with the prevailing macro environment. As a result we strongly believe that the potential to utilise our experience and expertise to exploit mispricing and generate true alpha is greater for small caps than large caps.
Over the years we have invested in internationally recognised companies, from luxury goods companies such as Hugo Boss, Bulgari, Moncler and Tod’s to world leading manufacturers of automotive premium brakes, pharmaceutical packaging machinery, tyre making machinery, batteries, petrol tanks, and foundation equipment to name but a few of the companies. What all these companies had at the time of investment was an improving underlying business leading to strong operational momentum, a valuation that was reasonable and a high level of quality (for example a management team with a strong track record of generating economic value added and shareholder value). These three factors – positive momentum, value and quality – are the three ingredients that we look for in all our investments and we apply this approach rigorously and consistently.