Source: IBES. *Topix refers to FY ending Mar’21 and ‘22
What do current events and lack of future clarity mean for us in the BMO European equity team? In some respects, not a lot. Anyone who has met us in the last 10 years will have heard us talk about the three things we look for – ‘quality, management and valuation’ and we believe a focus on these elements will hold us in good stead in the world we now find ourselves. A focus on strong balance sheets and good liquidity run by management teams that have consistently run their businesses for long-term shareholders remains key as this
will better ensure a business can survive. Valuation had been key for us as many quality businesses were valued in a way that left us with no margin of safety. March saw that change in some circumstances, and during the indiscriminate sell-off we took the opportunity to upgrade the quality of our portfolios even further. Additions included companies such as Ferrari, Lonza and Ubisoft, all highly liquid with business models we are confident will thrive into the future at valuations we haven’t seen for some time.
The good news is clearly that authorities have learnt lessons from the past and responded, in the main, quickly and aggressively with both monetary and fiscal stimulus. Our hope is that this limits the downside and we see a quick recovery. Of course, there is the fear is that we don’t and that both the direct impact of COVID-19 and the economic and societal impacts that follow will be bigger than anticipated. Whatever the outcome, our focus will remain on buying good businesses at attractive prices, run by management teams that understand they run the business on behalf of shareholders. Why? Because we believe that this approach is the best way to grow our clients’ capital over the long-term whilst at the same time protecting it during more difficult times.