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Finding the silver lining in Europe’s gloom

“You just don’t find those company valuations in the US. The dichotomy between Europe and the US has never been higher.”

He can hardly believe his luck. With his American peers obsessed over big technology floats, they’re missing out on Europe’s “great businesses, with actual earnings”.

“These European companies are global leaders in what they do. They’re not dependent on European revenue. That valuations disconnect is a function of what is happening economically in Europe,” he said.

He described the United States market as momentum-driven, whereas Europe is “a stock-picker’s market”, given its underperformance. Over the past five years, the MSCI Europe index had underperformed by 6 per cent a year, he said.

Roads less travelled Ned Bell likes Denmark’s relatively unexplored crop of medical technology stocks. Alamy

“That scares a lot of managers away, and they don’t sift through the we and find the good companies that are there.”

In a world where active management is on the wane, there is less broker coverage. And in Europe, coverage thins out even further because many European companies don’t need to raise money, so the brokers aren’t motivated to watch them.

“You get these reasonable prices when other people aren’t looking, or doing their homework,” Mr Bell said.

The valuation gap between the US and Europe has not gone completely unnoticed. A quick trawl of the output of investment firms such as GAM, Invesco and Goldman Sachs shows they are all mulling over the same discrepancy. Putnam Investments, though, suggests some of the gap is based on how the indexes are put together.

But whatever the view on the valuations question, there seems plenty of support for Mr Bell’s view that selectivity remains the key to success in Europe.

Investment hygge

And he’s certainly selective. Denmark, unusually, is a market he keeps coming back to. He follows Ambu, a former manufacturer of first-aid mannequins that has carved out a niche making cheap, single-use medical equipment to replace potentially infectious reusable kit.

Mr Bell waxes lyrical about the company’s disposable bronchoscopes, which use what is in effect an iPhone camera. He also likes fellow Danish outfit Novo Nordisk, maker of products to treat diabetes, haemophilia and obesity. We’re a long way from Prada and Gucci here.

When you ask the CEO what’s exciting about their business and they lean forward with enthusiasm, you know you’re onto something.

— Ned Bell, chief investment officer, Bell Asset Management

“You find all these amazing companies in Denmark that are profitable and have really interesting global med tech franchises. But I don’t hear my peers thinking about them and talking to them,” he said.

In the industrial sector, he picks out another Danish company: Novozymes, a manufacturer of enzymes for laundry detergents. He is equally enthused about Rational, a German manufacturer of industrial food ovens, which he says makes a 25 per cent return on capital “year in and year out”.

One of the unusual aspects of big European companies, he said, was the degree of family ownership.

“The importance of that is they don’t blow money. They have financial discipline,” he said. “They’re not so stringent that they won’t grow – they’re just more diligent.”

Mr Bell was in London to meet the chief executives of some of the companies in which he invests, or might invest. He comes several times a year – “wearing out the shoe leather”, he says.

“I put a lot value on meeting the CEO. Part of it even just comes down to body language. When you ask them what’s exciting about their business and they lean forward with enthusiasm, you know you’re onto something.”