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GAM Star European Equity

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GAM Star European Equity seeks to deliver attractive, risk-adjusted returns through active, unconstrained investment in a large, liquid universe of European stocks. GAM’s European Equity team uses a high-conviction approach to invest in a concentrated portfolio of 30-40 companies that it believes allocate shareholders’ capital intelligently, enabling them to generate superior long-term returns. The team is highly selective, meaning that it only focuses on the very best opportunities to capture key investment themes from a potential universe of approximately 420 companies in the MSCI Europe Index.

Our Edge

Flexible, risk-driven portfolio construction

The team’s stock picking approach, combined with a unique risk-driven portfolio construction model, aims to deliver a diversified portfolio which maximises stock-specific returns and minimises factor risk to deliver multi-year repetitive alpha generation.

Intensive stock-level analysis

The team gains an extensive understanding of companies and industry dynamics through Its relationship with a leading expert network, enabling them to meet with suppliers, competitors, customers and industry experts rather than rely solely on company management meetings. This is a vital research component when building detailed knowledge and expertise.

Experienced, high calibre team:

Lead manager Niall Gallagher has over 25 years of investment experience and together with seasoned co-managers Christopher Sellers and Chris Legg and consumer expert Flavio Cereda, the team brings deep analytical skills and robust experience to the European Equity market.

ESG framework

Key ESG risks and opportunities are embedded into the team’s analysis. The team’s proprietary research, in combination with analytical input from the GAM GRI team, has enabled a number of large investments in stocks that are directly driving and enabling decarbonisation.

Investment Team

GAM Star European Equity is led by Niall Gallagher, Investment Director, who is supported by investment managers, Chris Legg, and Christopher Sellers and consumer sector specialist Flavio Cereda. Niall has overall responsibility for the investment strategy, portfolio construction, research management and financial sector research. He was awarded FE Alpha Manager in 2018, 2020, 2021 and 2023. He also received a Sauren gold medal in 2020, recognising outstanding performance and experience.

The team works as a focussed, nimble group of investors bound together by a highly collaborative, tight-knit culture. Although research responsibilities are split by broad sector specialisations, team members also work interchangeably across the market. This makes for a stronger and more flexible team, drives interaction and enables knowledge sharing of specific sectors and the trends shaping their outlook.

The team draws on its long-standing relationships with an international network of industry experts, economists and analysts, as well as a ten-year relationship with leading expert network company Third Bridge, which enables the team to meet the specialists who help build its knowledge on companies and industry sectors as part of its research work.

Our goal is to identify and maximise stock-specific risk that cannot be replicated by smart beta / factor ETFs, in a way that maximises idiosyncratic alpha and is consistent with our fundamental research process.
Niall Gallagher, Investment Director.
Niall Gallagher
Investment Director
Chris Legg
Investment Manager
Christopher Sellers
Investment Manager
Flavio Cereda
Investment Manager

Philosophy and Process

A REPLICABLE INVESTMENT PROCESS: RESEARCH-LED STOCK SELECTION, RIGOROUS PORTFOLIO CONSTRUCTION AND ACTIVE STEWARDSHIP

Investment Philosophy

The team believes the most consistent method by which to achieve above-average portfolio returns is to rely on the compounding effect of high-return companies that allocate capital intelligently. It selects companies where their ROCE is sustainably greater than cost of capital and capital allocation is a key source of value creation, thereby choosing companies that reinvest if return accretive investments in the business are possible, acquire if acquisitions are strategically and financially accretive (ROIC > cost of capital) and return excess cash to shareholders intelligently through dividends, or buybacks when shares trade below intrinsic value.

Investment Process

The team’s process combines research-driven stock selection, rigorous portfolio construction and active stewardship with stock-specific ESG analysis, which is undertaken both pre and post investment (utilising quantitative and qualitative analysis). Firstly, the team identifies ‘value creators’ by excluding companies from the investment universe where their ROCE is below their cost of capital over the course of an economic cycle. Proprietary, fundamental research and analysis are then conducted to form an understanding of the value drivers for each part of a business, to determine the prospects for future earnings. Maximising long-standing relationships across the market, access to company management and extensive use of expert network / triangulation enable the team to gather insights into a company’s strategy, industry dynamics, competitors, customers and suppliers to identify potential long-term growth opportunities. The team undertakes detailed financial analysis and absolute stock valuation based on DCF, also considering various types of stock-specific risks, such as disruption risk, regulatory risk & sustainability issues and environmental threats (and opportunities) which are relevant to the long-term cost of capital that the company is likely to enjoy. The portfolio is built from the bottom up, with positions explicitly sized in a bid to maximise stock-specific alpha (ideally >50% of tracking error), minimise factor risks (10% of tracking error) and avoid excess concentration. No individual stock or factor may contribute more than 10% to tracking error, while the fund has a typical tracking error of 4-6% per annum and active share of >80%. The team believes it has a duty to act responsibly in pursuit of capital preservation and sustainable value creation for clients. To this end, it regularly undertakes portfolio-level reviews of ESG in investment risk, engages with company management, aided by GAM’s Responsible Investment Team, who also undertake independent ESG risk appraisals. The team is active in proxy voting and meets all of its investee companies during the year, in addition to those companies being considered.

1

Identify ‘value creators’

  • Refinement of investment universe by removing companies not aligned with the team’s ‘value-creating’ philosophy.
  • Focus on industry economics, balance sheets, competitive positioning, management track record and disruption potential.
2

Intensive stock-level analysis

  • Proprietary fundamental research and detailed historic financial analysis; absolute stock valuation based on cash flow.
  • Extensive use of network experts and triangulation to build detailed company and industry knowledge.
3

Stock-specific risks

  • Intrinsic risk analysis of company and industry.
  • Three broad types of stock-specific risk – financial, technology-driven disruption and ESG.
4

Risk-based portfolio construction

  • Maximise stock-specific and minimise individual factor risks.
  • Detailed analysis of factor exposures, factor volatilities and factor trends. Using Bloomberg MAC3 risk model; country, industry and style factors, plus stock-specific risk.
5

Stewardship

  • Owned voting process drives governance analysis. Aiming to proactively identify/engage with controversies.
  • The GAM Responsible Investment team supports regular engagement with management and undertakes independent ESG risk appraisal.

Reasons to Invest

Exposure to structural change

Powerful global trends, such as the rise of the Asian middle class, the digital transformation and decarbonisation (and the associated capex super-cycle), are creating opportunities, with stocks in the team’s highly concentrated portfolio selected with a view to capturing these secular trends shaping our world.

EM exposure

Select European companies are well-positioned to capture EM growth but with developed market corporate governance and cost of capital. More than 50% of the revenues of listed European equity markets are derived from outside of Europe, with EM economies contributing almost as much revenue to European equities as European countries.

Global leaders

European equities offer unique exposure to global leaders in multiple segments with exciting growth potential, such as luxury brands, technology, premium spirits and brands, selected healthcare and green technology & green leaders.

Sustainability

European companies are increasingly enabling cost-efficient delivery of global public policy objectives, including on climate and sustainable development. Investors can access key ESG themes through Europe-listed companies focused on enabling the energy transition and sustainable consumer trends.

Key Risks

Currency Risk - Non Base Currency Share Class

Non-base currency share classes may or may not be hedged to the base currency of the Fund. Changes in exchange rates will have an impact on the value of shares in the Fund which are not denominated in the base currency. Where hedging strategies are employed, they may not be fully effective.

Equity

Investments in equities (directly or indirectly via derivatives) may be subject to significant fluctuations in value.

Capital at risk

All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Five structural trends for Europe

We have seen strong performance from European banks this year; I think the world has finally woken up to the fact that the banks on five and a half times earnings, with dividend and buyback yields of 15% in some cases, is just the wrong valuation.
Niall Gallagher, Investment Director

Latest Events

Our Thinking

Outlook 2025
Exposure to key structural growth drivers
December 2024

EUROPEAN EQUITIES: “European equities are exposed to many of the key structural growth drivers in global economies.”

Investment Opinions
Smart diversification: European equities’ role as portfolio de-concentrators
24 October 2024

With global equities more than ever dominated by US stocks and US equities themselves increasingly skewed towards the tech sector, Niall Gallagher analyses the role European equities could play as portfolio diversifiers.

Investment Opinions
Hyper Active: Targeting stock-specific risk among Europe’s global winners
13 September 2024

Our Hyper Active series explores how GAM Investments’ portfolio managers – across both equities and fixed income - aim to harness the potential of active management to deliver better results for clients. In the latest edition, we spotlight Niall Gallagher, Investment Director, European Equities.

Our Thinking

Fund Information

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Disclaimer: Past performance is not an indicator of future performance and current or future trends. The indications could be based on figures denominated in a currency that may be different from the currency of your residence country and therefore the return may increase or decrease as a result of currency fluctuations. Capital at risk: all financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Any reference to a security is not a recommendation to buy or sell that security.

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