On December 29, 2011 Royce Global Value Fund and Royce European Smaller Companies Fund will celebrate five-year anniversaries. With the ongoing European debt crisis, it seems hard to believe there is attractive value on the continent. However, Royce Portfolio Manager and Director of International Research, David Nadel, thinks that 2012 could prove to be a year when international equities come storming back.
Looking back at Europe in 2011, what is your overall view? What has worked and what hasn't? That's a big question. First, you have to separate the macro picture, which is dire, from the select group of what we believe to be well-positioned companies, in many of which Royce is invested.
From a macro perspective, the region is home to a disproportionately large number of countries that have unsustainable debt burdens, a situation exacerbated by the euro currency crises. Whereas prior to the creation of the euro, less-productive European countries could conveniently devalue their currencies to manage a credit crisis and/or to stimulate growth via exports, the euro takes that tool away, leaving those countries hard-strapped. Plus, many of those same countries have historically had weak mechanisms for tax collection. While "core Europe" has been more fiscally-prudent than so-called peripheral Europe, it too is conflicted: Germany and other members of core Europe want a weak currency, but they don't want to continually subsidize and bail-out more profligate nations. Unfortunately, it's tough to have it both ways.
Add to these structural problems an aging population, generally high taxation, a lack of natural resources, and declining social mobility, and you have, to say the least, a very challenging environment for businesses selling to Europeans.
Despite all that, Europe still offers some compelling investment opportunities; you just have to be careful what you pick. More than any part of the world, Western Europe is well-schooled in designing and marketing products the world demands. Many European markets are small so European companies, including the smaller ones in which Royce invests, have been forced for many, many years to think pan-regionally and even globally. They never had the luxury of selling to a single, 300-million person market like U.S. smaller-companies have. In today's global economy — where the West is licking its wounds while emerging markets drive growth and demand — that makes Western European exporters very well positioned, while many U.S. smaller companies are still catching up. We particularly like the classic exporters based in German-speaking Europe, the UK and the Nordics. Many of these companies manufacture around the world, so they are not that vulnerable to the high labor-cost and currency issues of their home market. We have generally eschewed PIIGS (Portugal, Italy, Ireland, Greece and Spain) Europe because of its high levels of leverage, and comparatively weaker corporate governance and managements.
Is the European recession priced into shares? Are the companies you own feeling the recessionary pressures yet?
Continue reading the interview here.Also check out:
Looking back at Europe in 2011, what is your overall view? What has worked and what hasn't? That's a big question. First, you have to separate the macro picture, which is dire, from the select group of what we believe to be well-positioned companies, in many of which Royce is invested.
From a macro perspective, the region is home to a disproportionately large number of countries that have unsustainable debt burdens, a situation exacerbated by the euro currency crises. Whereas prior to the creation of the euro, less-productive European countries could conveniently devalue their currencies to manage a credit crisis and/or to stimulate growth via exports, the euro takes that tool away, leaving those countries hard-strapped. Plus, many of those same countries have historically had weak mechanisms for tax collection. While "core Europe" has been more fiscally-prudent than so-called peripheral Europe, it too is conflicted: Germany and other members of core Europe want a weak currency, but they don't want to continually subsidize and bail-out more profligate nations. Unfortunately, it's tough to have it both ways.
Add to these structural problems an aging population, generally high taxation, a lack of natural resources, and declining social mobility, and you have, to say the least, a very challenging environment for businesses selling to Europeans.
Despite all that, Europe still offers some compelling investment opportunities; you just have to be careful what you pick. More than any part of the world, Western Europe is well-schooled in designing and marketing products the world demands. Many European markets are small so European companies, including the smaller ones in which Royce invests, have been forced for many, many years to think pan-regionally and even globally. They never had the luxury of selling to a single, 300-million person market like U.S. smaller-companies have. In today's global economy — where the West is licking its wounds while emerging markets drive growth and demand — that makes Western European exporters very well positioned, while many U.S. smaller companies are still catching up. We particularly like the classic exporters based in German-speaking Europe, the UK and the Nordics. Many of these companies manufacture around the world, so they are not that vulnerable to the high labor-cost and currency issues of their home market. We have generally eschewed PIIGS (Portugal, Italy, Ireland, Greece and Spain) Europe because of its high levels of leverage, and comparatively weaker corporate governance and managements.
Is the European recession priced into shares? Are the companies you own feeling the recessionary pressures yet?
Continue reading the interview here.Also check out:
