Three years after the agreement of a bailout package for Greece, which lies at the heart of the European sovereign debt crisis, many investors still consider Europe a no-go area, worried as they are about further repercussions, highlighted by Cyprus’ recent bailout plans.
But not all areas should be tarred with the same brush. European smaller companies have performed well in the three years to May 1, with the IMA European Smaller Companies sector averaging 30.63 per cent, dramatically outperforming the 10.01 per cent rise on the HSBC Smaller Europe ex UK index, according to FE Analytics.
For Nick Williams, head of small- and mid-cap equities and manager of the £496.1m Baring Europe Select trust, this demonstrates the fact the macro challenges of Europe have also thrown up some good stockpicking opportunities.
“In general terms, I’m a fan of Europe as a place; the culture and the people,” he says. “In more specific terms to do with the stockmarket, I think the top-down issues have obviously been a challenge, but they have also produced opportunities. When I look at the performance of a lot of European small-cap fund managers, it looks quite good relative to almost any European benchmark you choose.
That means the difficult top-down environment has presented opportunities for good stockpickers to identify companies that are not just surviving but prospering in this environment.”
He admits, with a smile, “it would be nice if it was just me who had done that”, but adds that, depending on the timeframe, he is not necessarily in the top two of a very small peer group.
“I have to take my hat off to my competitors as well. There have been, pretty much across the peer group, some very good performers,” says Mr Williams. “But it has resulted in a ‘survival of the fittest’ environment, and so the European Smaller Companies peer group is a smaller one than it was six or seven years ago, perhaps not surprisingly. But out of that adversity has come opportunity.”
Having studied English Literature at Corpus Christi College at Oxford, fund management was not necessarily Mr Williams’ first-choice career. “It was only after university that I realised I had to have a career,” he says. “I made a few mistakes early on in the process and then I suppose I was lucky enough to fall into it.”
These “mistakes” included a stint in the publicity department of a publishing house. “The key project we were promoting was some awful rubbish, it was summer holiday, celebrity gossip tat and it drove me mad,” he says. “If it had been done efficiently so you could make loads of money at it then I could have seen the point, but it was done inefficiently and I just didn’t like it, as you can tell,” he laughs.
The range of jobs enjoyed in his “post-university confusion” included waitering, manual labouring and bookselling before he was accepted onto a graduate recruitment scheme at a company that subsequently went bust.
Starting in the City in 1990, his first role was in private client fund management at Fleming Private Asset Management. When the company folded, he followed his boss to Singer & Friedlander.
“I started to understand a little bit about what investment management was, and I realised I wasn’t cut out for private client fund management,” he admits. “I was actually quite interested in the process of stock selection and meeting the companies. So that’s how it happened – it was accidental and over time.”
The manager quickly showed an aptitude for his chosen line of work. He was given his first unit trust, investing in European equities, just four years into his career.
“One of the differences I experience now at Barings compared with my previous employers is that I have a better support infrastructure,” he explains, “both in terms of top-down research and the analyst teams we have available to us, plus the quant capabilities we have, which, frankly, I didn’t have any of in my previous employment.”
The manager is clearly happy to have found his niche. He says that, after spending 11 years in his previous role and nine years at Barings, “I’m not really a believer in changing what seems to work reasonably well”.
He adds: “My ambition is not to end up ruling the world. I like doing my job, and its nice when you’re helped to do your job, but I don’t want to do someone else’s. I have, in the distant past, been given more personnel responsibilities to deal with – other teams and things like that – and I haven’t enjoyed them. I would rather stick to contributing to the investment process and trying to do as well as I can in the areas in which I think I can probably add value.”
One of the draws of Barings, where he joined in 2004, was the chance to run the Europe Select trust. “I knew it was a very good competitor,” he says. “It was not to take an easy win and take something that had been performing poorly and make it slightly better: it was taking something that had already done very well and to try and maintain that strong track record – well, maybe maintain and enhance,” he laughs.
In addition to being head of small- and mid-cap equities and managing the Baring Europe Select trust, Mr Williams is also involved in running EAFE (Europe, Australasia and Far East) small-cap portfolios.
“We have an EAFE fund – world ex-US, basically – for US clients. In each of the regions we have skills and experience and expertise in smaller companies, but we’ve never [before] provided our clients with an integrated world ex-US product, so that is something we’ve now been running in a small portfolio for nearly four years with perfectly satisfactory results.
“It would make sense to grow that, because it’s taking the skillsets we already have and providing another service to our clients. There are potentially other niches in the small-cap space we could fill.”
However, the manager stresses that he wouldn’t want to give up the fund he currently runs. “It has been run, prior to me, by some very good fund managers, which means its ultra-long-term track record is good,” he explains. “To some extent, it is a mini flagship fund of Barings. It may not be the most famous – and it certainly isn’t the biggest – fund Barings runs, but it has a very strong long-term track record. It is nice to be associated with that.”
Mr Williams’ competitive nature also feeds into his hobbies. He describes his sport-playing ability as “bad but competitive”, adding that this is “not a good combination”.
He also has a desire to put his English literature degree to work by putting pen to paper and writing a book. “In the end I’d like to write books, learn a few more foreign languages and travel the world a lot more,” he smiles. “If I can write a history book, a book of poems and a novel, and learn to speak Japanese and classical Arabic, that would be good...”
For the moment, however, he is content with his fund management role. “What I like about investing in equities is meeting the management teams of the companies we are investing in and doing that bottom-up research – the process of meeting companies and trying to work out whether we like them, whether we believe what they are telling us and whether their finances stack up,” he notes.
“In smaller companies, which is basically where I’ve ended up, it is very tangible whether you’ve made the right or wrong decision in your bottom-up investment process, and that’s kind of why I’ve stayed where I am, in terms of asset class, and why I’m very happy to stay in this niche.
“Every now and then, when you’re not performing very well, it is painful, but it is also very exciting when things go right.”
CV
2004-present
Head of small and mid-cap equities and manager of the Baring Europe Select trust, Barings
1993-2004
European fund manager, Singer & Friedlander
1990-1993
Fund manager’s assistant, Fleming Private Asset Management
