It’s always important for investors to be aware of the global geopolitical environment but equally important for them not to be overwhelmed by it when it comes to picking stocks.
Today, for example, investor concerns about global risk have led them to invest in low beta stocks, stocks that are considered safe. And in so doing, drive up the valuations of those stocks to historically unprecedented levels.
That leaves other very interesting opportunities on the sidelines. Many European companies can thrive despite the regional uncertainty and global uncertainty. Three types of companies come to mind. The first one, for example, are companies that are undergoing some sort of positive change. One example of those could be companies that are turning around poorly performing businesses whose futures look very different from the past.
Another set of companies in Europe are European companies that have sustainable competitive advantage over their peers and are poised to gain market share over the next few years. The third type of company would be European companies that are positively exposed to some sort of a global trend. And we expect these trends to continue irrespective of the global economic environment.
A couple of examples to highlight what our private equity approach can deliver, one example would be KUKA. A few years ago, we identified this small German engineering company as being particularly well positioned to gain from the global trend towards automation of the production processes. KUKA makes robots and these robots are much needed by manufacturers to lower costs and to produce high-quality goods. And that impetus will be there regardless of what kind of an environment the world finds itself in.
In Europe today, we believe that taking a private equity approach to public equity investing allows us to uncover these types of opportunities. By private equity approach, I really mean three things, the first is really studying and understanding the industries that the companies operate in to really understand how those industries are going to evolve over time, the second area would be to focus on cash flows and the cash flows that the companies are going to throw off over the next several years, and finally is to take a long-term view and think about the return’s potential over a multi-year horizon.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. AllianceBernstein Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom.