At the risk of appearing ancient, I can remember when negative headlines helped sell millions of newspapers. Now they help generate millions of clicks. The medium may have changed, but the maxim remains the same: “If it bleeds, it leads.”

It is easy enough to understand why this philosophy has endured. Not many readers would be too enthralled by headlines such as “Woman treats herself to beautiful bracelet”, “Another sunny day in Greece” or, even more non-thrillingly, “Power tools prove popular”.

For informed investors, though, even the most trivial-sounding feel-good tales can mean a lot. They remind us that, despite all the bigger-picture doom and gloom, the world of equities is full of individual success stories.

Few regions demonstrate this truth more compellingly than Europe, which a generation of investors has been led to believe is home to precious little in the way of opportunities. We can perhaps trace this curious perception back to the end of the global financial crisis.

The US exited the turmoil of 2007 and 2008 with a commitment to aggressive fiscal stimulus and was subsequently boosted by the emergence of Big Tech. By contrast, Europe favoured austerity and tighter regulation and has experienced comparatively slow economic growth ever since.

It is worth noting that something of a role reversal is now under way. The US is facing mounting fiscal challenges, whereas European governments – led by Germany and its €500 billion spending package – are rediscovering a readiness to splash the cash.

But even this is insufficient to sway some critics. Europe’s opponents are usually quick to point out that there is always bad news to be found somewhere on the continent.

For instance, the southern economies were portrayed as hopeless basket cases for years. France has been careening from one political calamity to another of late. On the whole, growth is still less than stellar – which is why “gradual expansion” has long featured among the European Commission’s favourite phrases¹.

Anyone focusing solely on the countless column inches devoted to such woes may feel there is never a good time to invest in Europe. Yet looking beyond the headlines might produce a rather different conclusion – not least regarding smaller companies.

Seeking out pockets of long-term growth

Let us revisit those made-up and seemingly deadly-dull headlines from the second paragraph. What does the first, “Woman treats herself to beautiful bracelet”, tell us about Europe’s smaller companies?

I have in mind here Fope, an Italian maker of luxury jewellery. Anyone who knows me will tell you I am not exactly a dedicated follower of fashion, yet I recognise the investment appeal of any business whose products are essentially timeless, whose track record is strong and whose management has a clear and sensible plan for the way forward.

“Another sunny day in Greece” might sound like a nod to the climate crisis, but in this instance it is a paean to Sarantis. Headquartered in Athens, the company manufacturers a wide range of consumer goods – including sun cream – and has a sizeable presence across Europe, with little competition from overseas.

Finally, “Power tools prove popular” brings us to Einhell. Based in Bavaria, this highly innovative business is consistently taking market share from larger rivals such as Bosch and Black & Decker.

Einhell is a classic example of a fast-growing company within a slow-growing economy. Fuelled by cutting-edge ideas such as a single battery that fits all products, its sales have increased by around 10% a year since 2018 – a period encompassing the COVID-19 pandemic, the war in Ukraine, trade tariffs and other significant sources of market turbulence.

Of course, no-one seriously expects these businesses to dominate the mainstream news agenda. They are never going to knock geopolitical tumult and similar “bleeders” off the front pages. They very seldom even earn the attention of investment analysts.

So how do investors get to learn about them? This is where expertise and experience enter the reckoning. A fund like IFSL Marlborough European Special Situations relies on its own in-depth research and direct engagement to identify smaller companies capable of delivering long-term growth.

This means heavy weightings towards supposedly “hot” sectors are unlikely. It also means the chances of constructing a portfolio replete with household-name stocks are low. Maybe above all, it means rejecting the bizarre notion that an entire region must be on the slide – or, for that matter, on the rise – at any given moment.

The credo of “If it bleeds, it leads” will probably be with us forever, but investors blinded by negative headlines about Europe might be better served by another age-old media dictum: “Today’s news is tomorrow’s chip paper.” Ultimately, amid all the noise, it is the pros and cons of individual businesses which really count.

David Walton is manager of the IFSL Marlborough European Special Situations Fund.

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^1.See, for example, European Commission: “Spring 2024 Economic Forecast: a gradual expansion amid high geopolitical risks”, May 15 2024 – https://ec.europa.eu/commission/presscorner/detail/en/ip_24_2567.

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Find out more about the Marlborough European Special Situations Fund

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.

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