Greek loans, Polish denim, German cookers: the new shape of European growth
Short Briefings on Long Term Thinking - Baillie GiffordShow Notes
“Europe looks more like emerging markets than it does North America,” Joe Faraday, Baillie Gifford’s new head of European equities, suggests in this conversation. He means that growth takes many forms across the continent, creating an eclectic mix of companies to choose from and specific circumstances to consider. As he reveals, it’s led him to reposition the portfolios under his watch, broadening the types of companies they contain.
Background: Joe Faraday is our head of European equities and investment manager of the Baillie Gifford European Growth Trust and European Fund. In this conversation, he tells Short Briefings… host Leo Kelion about some of the stocks he has added to and removed from the portfolios of our European Growth Strategy. Faraday took charge earlier this year with a mandate to improve performance. “We’ve changed rather a lot,” he says, regarding efforts to broaden the mix of growth themes the portfolios he manages tap into, while ensuring that he grounds each buy or sell decision on an intimate understanding of each stock.
Companies discussed include: Piraeus Bank – Greece’s biggest lender, expanding its reach with new insurance, asset management and digital banking services LPP – the Polish retail group behind Sinsay, the rapidly growing fashion and homeware brand big in central and eastern Europe TotalEnergies – the French energy group involved in exploration and production, liquefied natural gas and renewables Rheinmetall – the German defence contractor, whose activities range from drones and armoured vehicles to ammunition and satellites Bending Spoons – the Italian app acquirer that rearchitects and revitalises mature digital businesses Rational – the German manufacturer of ‘combi ovens’ designed for commercial kitchens
Resources: A disciplined case for European Growth European megatrends: what’s on my mind? Supercommunicators by Charles Duhigg The European opportunity set The Short Briefings… archive
Companies mentioned include: · Airbus · Allegro · Bending Spoons · CaixaBank · Dino Polska · Exail · Iberdrola · Piraeus Bank · LPP · LVMH · Nexans · Rational · Rheinmetall · TEKEVER · TotalEnergies
Timecodes: 00:00 Introduction 01:50 From paint-making to portfolio management 03:30 Investment track record 05:25 Broadening the growth types 07:05 Megatrends and individual circumstances 08:45 Rearmament, energy security and consumption 10:30 “Europe’s not like Marmite” 11:45 TotalEnergies – a mega energy business 16:30 Rheinmetall – a catch-all defence contractor 19:05 LPP – the Zara of eastern Europe 22:20 Piraeus Bank pushes into insurance 24:40 LVMH and the outlook for luxury 26:40 Building on Bending Spoons 28:50 “Decisive action has been taken” 29:35 Book choice
Glossary of terms (in order of mention): Small-cap: Shares in companies with relatively small total stock market values. Compound: Gains that build on earlier gains, so an investment’s value can grow at an increasing rate over time. Exploration and production: The part of the oil and gas industry that searches for reserves and extracts them. Liquefied natural gas (LNG): Natural gas cooled into liquid form so it can be stored and transported more easily. Integrated power: A business that combines several parts of the electricity system, such as generation, trading and supply, often across conventional and renewable sources. Capital allocation: The decisions a company makes about how to use its money, including investing in operations, buying businesses, repaying debt or returning cash to shareholders. Free cash flow: Cash left after a company has paid its operating costs and the investment needed to maintain or expand the business. Capital markets day: An event where a listed company gives investors and analysts detailed information about its strategy, operations and financial prospects. International Monetary Fund (IMF): An international institution that monitors economies, advises governments and can lend to countries facing financial dif
More from Short Briefings on Long Term Thinking - Baillie Gifford
The biggest car-carrying ships on the planet. A chip-testing rig that weighs as much as a small elephant. Investment manager Alex Summers takes us inside some of emerging markets’ least-watched growth companies to explain how his team sees what others have missed. “Often, the crowd is going to be right,” he acknowledges, but when it’s not, long-termism, access to management and asking different questions are key to how his team determines investment opportunities.
Baillie Gifford first invested in SpaceX in 2018, nearly eight years before its record-setting stock market listing. Investment manager Luke Ward, who championed the holding, discusses what first drew him to the business, why Starship is critical to its future, and reveals where he’s now looking for another company with industry-upturning potential.
Tokenisation represents an “operating system upgrade” for the investment industry, says Theo Golden, Baillie Gifford’s new head of digital assets. In this episode, they explain what it involves and how it should deliver a better experience, both by reducing the number of middlemen between you and your investments and making your holdings more “useful”.
The US public’s tastes and habits are fragmenting, leading to new consumer behaviours. The shift from a handful of TV networks to an endless supply of streamed shows and social media clips is just one of many causes. Investment manager Dave Bujnowski discusses the characteristics that determine which growth companies should thrive in the resulting ‘high entropy’ environment.
Bottlenecks often act as constraints on growth, but companies that create funnels through them can gain pricing power and capture long-term value. Investment manager Mike Taylor reveals some of the companies he thinks achieve this best and how he spots such pinch points before they fully form.