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GAM Star European Equity

GAM Star European Equity seeks to deliver attractive, risk-adjusted returns through active, unconstrained investment in a large, liquid universe of pan- European stocks. GAM’s European Equity team, led by Niall Gallagher, uses a high conviction approach to invest in a concentrated portfolio of 30-40 companies that it believes will generate superior long-term returns and allocate shareholders’ capital intelligently. The team is highly selective, meaning that it only focuses on the very best opportunities from a potential universe of >1,100 stocks and approximately 450 companies in the MSCI Europe Index.

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Over half of the profits and revenues of European companies are derived from outside of Europe, thanks to their direct access to key long-term structural trends
Niall Gallagher, Investment Director

Reasons to Invest

Exposure to structural change

Powerful global trends, such as the rise of the Asian middle class, the commerce switch from offline to online and decarbonisation, are impacting worldwide markets, with such trends underpinning and impacting the select stocks in the team’s highly concentrated portfolio.

EM exposure

Select European companies offer strong EM growth but with developed market corporate governance and cost of capital.>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 offers unique exposure to global leaders in many areas, such as luxury, technology, premium spirits and brands, selected healthcare and green technology & green leaders.

Sustainability

European companies are enabling cost-efficient delivery of global public policy objectives. Furthermore, investors can access the ‘socially responsible’ theme through European luxury goods companies, which are increasingly responding to growing awareness among younger consumers with sustainable strategies and partnerships.

Our Edge

Innovative, risk-based portfolio construction

As active stock pickers and equity managers, the team builds a process which seeks to minimise factor risk in order to maximise stock specific risk, thereby achieving adequate diversification and maximising the team’s unique stock picking-approach when building the portfolio.

Intensive stock level analysis

The team gains an extensive understanding of companies and industry dynamics through meetings with suppliers, competitors, customers and industry experts, rather than relying solely on meetings with CEOs and CFOs. Its relationship with a leading expert network firm is a vital research component when building this very detailed knowledge and expertise.

Experienced, high calibre team:

Niall Gallagher has 22 years of European equity investing expertise and has built a skilled team with strong experience and previous research coverage of the sector. Niall was awarded FE Alpha Manager in 2018, Alpha Manager 2020 and a Sauren gold medal in 2020, recognising outstanding performance and expertise.

ESG focus

Key ESG risks and opportunities are embedded into the team’s analysis, and the team has a number of large investments in stocks that are directly driving de-carbonisation across power generation, mobility, buildings and industrial machinery.

Philosophy and Process

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 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, in order to determine the prospects for future earnings. The team conducts more than 300 meetings each year across Europe. Its long-standing relationships across the market, excellent access to company management and strong use of expert networks enable it to gather insights into a company’s strategy, industry dynamics, competitors, customers and suppliers to identify potential long-term growth opportunities. The team also considers 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 than10% 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 Boards and company management, 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 and ESG.
4

Risk-based portfolio construction

  • BARRA risk model (containing 47 individual risk factors) ensures the optimal risk/return trade-off is maintained.
  • Detailed analysis of factor exposures, factor volatilities and factor trends.
5

Stewardship

  • On-going portfolio monitoring and management.
  • Stock specific ESG analysis undertaken both pre and post investment utilising quantitative and qualitative analysis.

Investment Team

GAM Star European Equity is led by Niall Gallagher, Investment Director, who is supported by three investment managers, Swetha Ramachandra, Chris Legg and Christopher Sellers. Niall has overall responsibility for the investment strategy, portfolio construction, research management and financial sector research.

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.

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 Thirdbridge, which enables the team to meet the experts 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.

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.

Contacts

For your local contacts, please Select your Country, or visit our Contacts and Locations page.

GAM Star European Equity is a sub-fund of GAM Star Fund p.l.c., registered office at George’s Court, 54-62 Townsend Street, Dublin 2, Ireland, an umbrella investment company.

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.