Our investment philosophy is shaped by the belief that long-term returns will be driven by the fundamental business performance of the companies we own. We therefore aim to look beyond the economic and political noise and concentrate on the real-life fundamentals of the listed businesses we invest in. As a market, Europe is large, international and diverse, meaning it offers us plenty of opportunities.
Our focus is on finding companies we believe can grow their dividends consistently, irrespective of the prevailing economic conditions. History shows us that this characteristic is a marker of quality that can help to identify stocks likely to outperform the market, so most of our time is spent looking at individual businesses.
However, we also keep one eye on the wider market because we want to maintain a balanced portfolio across sectors and by size of company. So despite the uncertain economic backdrop, a result of the Covid-19 pandemic, the rollout of vaccines and the finer details of Brexit, the portfolio remains balanced in terms of exposure to different industries and our focus is still on finding attractively valued companies with good prospects for cash generation and dividend growth over three to five years.
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The world’s biggest food business
Nestlé (Zurich: NESN) is the largest holding in the portfolio and a long-standing investment. As the world’s largest food business, Nestlé has a strong strategic position in its markets and operates in several categories where there is both strong growth and high emotional engagement, such as pet care. Nestlé has a robust balance sheet, offers attractive high single-digit earnings growth and has a consistent record of paying attractive dividends to shareholders. Looking ahead we see further opportunities for the business to expand its core offerings, while management can pursue efficiencies and divest lower-value businesses.
A one-stop shop for global growth
Prosus (Amsterdam: PRX) is a relatively new name for the trust, but is a stock we have monitored for some time. Prosus is a holding company with major investments in some of the world’s leading online consumer franchises. This is an interesting business that offers European investors access to structural-growth themes we see more prominently in other markets: Europe generally lacks the technology leaders we see in the US and China.
Prosus is well positioned to benefit from the accelerating trend towards online activity the Covid-19 pandemic has caused, with the growth in e-gaming and e-commerce unlikely to subside to pre-pandemic levels as economies reopen.
The company has a very strong balance sheet. Since its initial public offering in 2019, Prosus has traded at a huge discount to the listed companies it invests in. It also pays an attractive dividend.
Another stock we like is Enel (Milan: ENEL), an integrated electricity utility operating in generation and distribution across Italy, Spain and Latin America. We see Enel as particularly well placed to benefit from the move towards renewables, both directly and through its many subsidiaries. As a utility, Enel offers an attractive yield and a dividend that will grow as the firm expands its contracted solar and on-shore wind power generation capabilities.
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