They say a picture paints a thousand words — and the chart below certainly does. It shows the dramatic underperformance of the European consumer sector over the past three years, lagging industrials by a staggering 40%. That’s the widest gap in two decades, and for us, such extreme divergence is a signal to pause and re-examine our portfolio positioning.
Read More
Mike Clements
Fund Manager
Has the pendulum swung too far?
So, what’s behind this? Industrials have ridden a powerful two-pronged narrative. First, the surge in AI-related capital expenditure by global technology giants has fuelled order books at many of Europe’s industrial companies - especially those supplying equipment to data centres and the wider electricity value chain. Second, in a world where NATO membership suddenly feels less of a guarantee, Western governments have unleashed a wave of defence and infrastructure spending, benefiting manufacturers across the continent.
Meanwhile, consumer names such as Nestlé, Adidas or Heineken have fallen from grace. Nestle, for example, enjoyed consistently strong price/mix growth for much of the 2010’s but then a mixture of cost inflation driven price increases after Covid and slowing category growth in areas such as pet care has led to slowing growth and has left the stock trading close to its lowest valuation in ten years.
Our own portfolio has benefited from these industrial tailwinds. With a natural bias towards “picks and shovels” businesses, holdings like Siemens Energy, Friedrich Vorwerk and Renk Group have driven strong, top-quartile returns this year. On the flip side, we have not held many of the troubled consumer stocks.
Yet charts like the one above serve as a timely reminder that as industrial valuations are looking increasingly full, there are always opportunities elsewhere. Maybe it’s time to revisit the unloved consumer sector?
Pras Jeyanandhan, Fund Manager
Mike Clements, Fund Manager
Contact Details:
Fund Manager: Pras Jeyanandhan – [email protected]
Fund Manager: Mike Clements – [email protected]
Head of Distribution: Theresa Russell – [email protected]
Data source (unless otherwise stated): Bloomberg
Disclaimer
All information about the VT Downing European Unconstrained Income Fund (‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund and