Merrill Lynch’s European business has $12.2 billion (€10.19 billion) of assets under management. The Continental European Growth Fund accounts for investments of some €135m.
Investment philosophy
Advertisement
Merrill Lynch focuses primarily on stock picking. “We interview hundreds of companies a year and study businesses in great detail,” said Gallagher. “We want to know what makes them tick. We form views of their earnings profiles and look closely at their balance sheets and cash flow.”
Gallagher says Merrill Lynch tries to work out where a company is going to be in the medium to long term. “We want to buy shares in firms where prospects are not fully priced in. We look for an attractive price.”
With this fund, Gallagher looks for shares that have at least 30% to 40% upside.
Advertisement
Performance
The Continental European Growth Fund delivered an absolute return of 32.5% from the end of January last year to the end of December, compared with a 22.4% return over the same period by the benchmark FTSE All-World Europe ex-UK Index.
Advertisement
Buying and selling
Gallagher is bullish about a number of Irish stocks, due to the robust economy and quality of many listed businesses. Anglo Irish Bank counts among the fund’s top 10 holdings. “The bank is very successful in Britain and increasingly so in America. It is tightly run, has costs under control and a good track record.”
He also expresses confidence in Ryanair. “It is a very well-run business where execution is superb.”
Other Irish favourites are Grafton and Kingspan, the construction sector giants.
Advertisement
The fund has increased its exposure to Germany over the past year. “We’ve become more positive on its economic prospects and there are increasing signs of restructuring in German firms.” He likes Siemens, the engineering and electronics conglomerate, and SAP, the business software giant, as well as property lenders such as Hypo Real Estate and Aareal Bank.
The wider European banking sector also appears attractive to Gallagher, due to the relatively low inflation and interest rates environment. He is particularly upbeat about Swiss private banks UBS and Credit Suisse.
Advertisement
Outlook
With robust economic growth in periphery economies such as Ireland, Norway, Sweden, the Czech Republic and Spain, and corporate reforms under way in some of the more staid core economies, such as Germany, Gallagher says that he is quite positive about European equities.
“On the whole, shares are not expensive and earnings growth is good,” he said.