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When in Rome – think micro not macro

6 June 2018

Italy, like Europe, needs a specific investment approach, suggests David Jane, manager of Miton’s multi-asset fund range. 

Early in my career I came to my boss with some research on an Italian food company. His response, “There’s only one thing you need to know in investment – never invest in Italy”. Sage words, as if you had invested in Italy over the past 30 years you would have materially underperformed the rest of the world, and particularly in the post Euro period you would have lost money.

Of course, it’s not the stock market’s underperformance that causes Italians to vote for change. However, the causes of both are possibly the same factor; the serial weakness of the Italian economy, arguably impoverished by having to suffer from economic and monetary policies designed to fit a non-existent European norm, rather than the reality of the various individual European countries.

Europe had initially appealed to Italians as many of their own governments had not performed, so delegating power to a central European authority seemed an attractive option. The same can be said of the Euro, as the Italian Lira had a rocky history beset with devaluations, so the Euro offered the prospect of stability. However, stability has come at a huge price, particularly post financial crisis.

Italian GDP vs German GDP

Italian GDP has failed to grow post GFC having initially performed well in the post Euro period. I will not dig into the reasons for Italy’s underperformance here, but it’s easy to see how populists can appear attractive when things have clearly been going very poorly for an extended period of time.

Given that level of instability and the fact that the future of the European project is again being called into doubt, why would any sensible investor risk investing in a region with such huge problems? Here we can call upon another of the sage words of my first boss, “It’s a market of stocks, not a stock market”.

While for a period of time we had a material exposure to economically sensitive stocks in Europe to benefit from a recovery, we now find ourselves with still a reasonable exposure to Europe, however when we dig deeper our holdings are primarily within our thematic baskets rather than our macro baskets. Despite Europe’s problems there are many highly attractive businesses whose drivers are not ‘Europe’, but instead focus on long term structural themes such as healthcare or agricultural demand.  Therefore, while broader Europe may be called into doubt again, the drivers of many stocks are anything but Europe.

We see this as a great advantage of our strategy, because rather than investing on a pure macro basis we can look for exposure to more micro themes particularly when the broader macro is in doubt, to give better diversification and wider drivers to our returns.


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