Welcome to the Morningstar series, "Why Should I Invest With You?" I'm Holly Black. With
me is Moritz Sitte. He is the Manager of the Baillie Gifford European Fund. Hello.
Hi, Holly. So, we're talking Europe today. And there's
a lot going on in Europe that investors might be concerned about. What's the backdrop at
the moment? Well, I think, you're absolutely right. There's
always plenty to be concerned about with Europe. I've been with Baillie Gifford now for almost
10 years. And I actually spent my first year in the European equities team. And I don't
think there's been a single month or a quarter when there hasn't been something dreadful
that's come out of Europe, whether it's the PIIGS crisis, the worsening demographics,
the debt problems, the governance issues, Brexit, of course, and so on. So, take your
pick. There's plenty to choose from in terms of macroeconomic woes. But funny enough, what
we found as bottom-up stock pickers is, there are plenty of fantastic businesses that we
then we can find and own for the long term where we think we can make a lot of money
for clients. And often they are neglected because people see these macro headlines and
pay far too much attention to them. Yeah, I was going say, doesn't that make it
a more interesting place to invest if it's changing all the time, and things are falling
in and out of favor all the time? Yeah, absolutely. And I think, actually, what
we're looking for doesn't necessarily change that much. Because we do try to find businesses
that we think could be big winners in the long run. So, we look for businesses that
have strong competitive advantages, that have a long runway for growth, and that are run
by people whose interests are very well aligned with those of our clients. And I think when
you find – that's what we always do, that's what we're trying to find. But this macroeconomic
turmoil provide us with opportunities to find these businesses at attractive prices.
And you also like businesses that are run by families. That's quite a common thing in
Europe, isn't it? Yes, there's quite a few. And I think that
there's many reasons for that. But if you look on continental European exchanges, there's
plenty of family-run businesses. That doesn't necessarily mean that they're all well run.
But I would argue that there's a subset of these types of businesses where the alignment
between the people running and controlling the firm – or the company and the people
and they are our clients is very strong. And when you find those businesses, it makes sense
to own them for the long run, because these are businesses that tend to do a lot better
than your common average business. Well, you want businesses that do well, you're
specifically looking for what's called a 10-bagger. Yes.
Black: It's quite an ambitious investment target.
Yes, it is ambitious. But I think that's what you almost want to aim for. Because I think
there's often a trade-off where people focus too much on small opportunities, and then
forego the big opportunity. And actually, when you take a step back and say, what do
I really want to focus my attention, and our clients' capital on, it should be on the big
opportunities on what we think are the big winners.
So, I was looking at your portfolio and there's quite a lot in personal goods companies, things
like L'Oréal. What is it that tends to make those good investments?
Taking L'Oréal specifically, because I think it's a good case study for that sort of business,
these are often businesses with very attractive economics. If you look at L'Oréal, it has
incredibly high gross margins. Given the product itself, it's a small ticket, but people place
a lot of value on them. So, it has attractive economics. It's built a brand reputation for
a long period of time, a strong distribution edge. And it has a long runway for growth,
not just in the developed markets, but also in in markets like China, where L'Oréal is
growing more than 20% a year. And lastly, it's run by a management team that has been
in the firm for a long period of time and has done a fantastic job growing this business
over the long run, supported by a family, the Bettencourt family, as the sort of anchor
shareholders. Well, thank you so much for your time.
You're welcome, Holly. And thanks for joining us.