“In Europe there are companies and investment themes that will be the next winners of the Champions League”

Inflation and central bank policy worry everyone, including investors when it comes to making portfolios. But we must keep in mind that these are factors that are beyond our control. Looking at the long term, what should investors look for when managing their assets? 2.02

José María Luna: The market is in “minute and result” mode regarding the interventions of the major central banks, inflation data, interest rates, etc., which results in a very short-term point of view. I think there are other components that are very interesting and that are being ignored precisely in this medium-long term strategy. And it is business as such. Where are the themes? Where are those ideas that generate value for shareholders or bondholders? What about the growth data of the companies themselves and the different geographic areas of the world? Because, on this last point, we must not forget that it was thought that we were heading towards an economic recession in the United States and what we are noticing is a great resilience of the world’s leading economy; It was also believed that it was going to be very difficult for China to get out of where it was and we are beginning to see some data that points to a certain stability, etc. There are many factors, including geopolitical ones, such as the industrial relocation that is taking place in certain areas of the world as a result of the pandemic or geopolitical tensions, which are implying that other parts of emerging markets are having much better stock and economic performance. than had been expected (we have an example in Vietnam). In short, there are a series of factors that are not taken into account and that are enormous opportunities; We continue to see the “wailing walls” of the central banks, but we do not focus as much on the walls that can become stepping stones to advance, and it is those opportunities and themes that are really doing very well.

Francisco Rodríguez d’Achille: Our portfolio companies, for example, do not talk about inflation or interest rates, because if you analyze businesses at a fundamental level, the structural growth of some market niches is actually quite healthy and robust. And that’s what’s important: identifying those companies that depend on themselves to execute a business strategy. In a market context in which, after 2022 we are facing a new paradigm of positive interest rates – which we in fact see as an environment much more conducive to economic growth than the years before the rate increases – and in A social and business environment that was “forced” to accelerate its digitalization as a result of the pandemic, many companies have done their homework in terms of having little debt, having strong pricing power, and improving processes digitally. .and precisely those are the companies that, today, are very healthy and doing very well. When the market takes its eyes off that long-term interest rate curve and focuses again on the companies that are generating a ton of value for our society, those companies will surely have the opportunity to once again excel in profitability and opportunity.

In which sectors and themes at the European level do you see potential for growth?

José María Luna: When we talk about Europe, it is impossible to ignore the excessive regulation to which many companies are subject when compared to other areas of the world. There are enormous opportunities in the financial, industrial and even technological sectors of Europe, where we have true champions in both large capitalization companies and ASML for example, but also in companies that are less known. They are those “ugly ducklings”, but they can become “swans”. A topic that I think is interesting is everything that is related to industrial electrification. We talk a lot about artificial intelligence and the digitalization of the economy and society, which obviously involve many advances and improvements in productivity, but this has an “Achilles heel”, which is the need for energy. If we add to that everything that is the energy transition, here Europe is ahead precisely because of the regulation itself. And it is evident in the numbers… According to the latest data on exports from Germany to China, curiously the second sector of products that it is exporting is equipment used for electrification in a country, in an emerging area, such as China. Europe, from my point of view, plays a very important role and industrially has moved to another level. It is true that other areas of the world such as the US or some emerging countries have an advantage over us, but on the other hand in Europe we have companies that have a lot to say in everything that is this energy transition, whether manufacturing wind turbines or everything that is related to the green and not so green energy. That is, we have companies that can cover that “Achilles heel” that artificial intelligence and many other industries need. There is a lot of talk about the digitalization revolution, but we need that other revolution, which is precisely that industrial electrification, and in Europe we have those “ugly ducklings” that have been left behind but have a lot of potential.

Francisco Rodríguez d’Achille: We call them “cute ducklings” in this case… Europe has been playing a global leadership role for at least 40-50 years and this has developed over the last 15. Artificial intelligence is possible because we have data, and every We increasingly need to store, produce and process this data. Electrification is closely linked to the energy transition because before (at least a decade ago) the cooling systems for the processing and maintenance of these data centers were done using a lot of water, which cooled them and lowered temperatures, until optimal efficiency conditions are reached. Today, in Europe we have companies that fill that function. For example, we have in our portfolio the Swedish company Munters, a global supplier of this technology that develops waterless cooling pumps to maintain balanced and optimal temperatures in data centers. In that sense, this small-mid cap (capitalized 3.5 billion) has greatly improved the process of optimizing processes and conditions, but it also does so without water and through electricity. In this way, there are important macro processes linked to the issue of industrial electrification.

It has been four years since the pandemic. How has the medical sector advanced since then, especially at a technological level? What potential do you see in it?

José María Luna: It is a key sector, like life itself. If we dedicate so many resources to saving our planet, which is where we live, it should first take care of each one of us. What we have learned after the pandemic are two things: how vulnerable human beings can be and how important it is to dedicate resources, both public and private, to everything that is prevention, treatment and recovery measures, in the face of any type of disease. Obviously, all this investment, which until now was channeled mainly through large pharmaceutical companies, is increasingly having much more potential, and especially in Europe, in the area related to MedTech, that is, medicine but with technological innovation. And precisely for that reason, because technological innovation in the field of medicine, in the pharmaceutical field, in the field of transplants, etc., is vital and human beings have realized its relevance, the channeling of both public funds as innovation at a business level in Europe is key. In fact, right now MedTech is one of the sectors that weighs heavily in Europe in terms of employment and investments. The pandemic, which unfortunately cost so many lives, accelerated these medical innovations that have become true themes and investment opportunities, beyond monetary policies and the short-termism that central banks often impose on us.

Francisco Rodríguez d’Achille: The advances, at least during the last two decades, have been enormous. The social utility function of many of the listed companies we have in Europe is extraordinary. At Lonvia Capital we invest around 20-25% of our strategy in medical technology, despite the fact that in the last two years they have been quite punished companies because they have gone through an “inventory digestion” process. And many of these companies that we invested in helped are some of those that saved many lives during the pandemic. Medical technology continues to advance, but the interesting thing about all this is that it is a sector that reinvests around 30% of companies’ net profits in R&D and innovation. And that means that you are a company that reinforces entry barriers year after year, because your R&D and innovation are at very demanding levels. Within our portfolio, in Europe there are many medical technology companies that are quite uncorrelated with each other when it comes to ophthalmology segments, DNA cell counting segments, dental implant segments, segments related to brain microsurgeries, etc. A company worth reviewing and in which we began to invest in 2020 is the Danish company ChemoMetec, which develops a type of cassette in which they automatically count DNA cells, something that just 5 years ago doctors did. through a microscope to personalize treatments for each patient. It is a company that has been developing this type of technology for 25 years, but this particular technology is leading them to achieve EBITDA margins above 45% and double-digit growth in terms of profit. This European company, which also sells to the United States, Singapore, Indonesia and China, is an example of betting on a much less known segment and one in which you have to do your homework much less carefully. And that is where we can add value.

How do we materialize this into a strategy?

Francisco Rodríguez d’Achille: We are coming from a 2022 of quite discounted valuations for the European small and mid-cap category. It is a very favorable time to start building positions, but you have to know where and how. Our proposal is the Lonvia Avenir Mid-Cap Europe fund, a strategy that has around 55 companies, with a maximum of 6% exposure per company, where we invest in innovation. For us it is very important to invest in the leaders of these market niches capable of becoming the global leaders of tomorrow. Companies that can grow margins above 15%, with very strong barriers to entry and with a clear philosophy of ideas. It is a transferable strategy for the Spanish investor, around 270 million euros net, and with a management team that has been developing this philosophy for more than 16 years.

José María Luna: Now that we have just had sporting successes, we must not forget that successes are achieved through teamwork. An investment cannot be measured in isolation. Any investment idea must be measured as a whole. I say this because there are times when I detect a lot of anxiety in certain investment funds because not every year are the ones that are scoring “the most goals”, and we forget precisely all these themes that, with patience, go from being novel to laurels. I believe that these ideas in Europe that are not being taken into account by investors are very worthwhile and in my case, as an analyst and financial advisor, I keep them in mind when recommending and designing precisely those teams that in the end will be the winners of the Champions League.

Free courses to invest in the stock market