| BUSINESSWEEK ONLINE : NOVEMBER 6, 2000 ISSUE | ||||||||
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| INTERNATIONAL -- FINANCE
A Gold Mine in European Micro-Caps (int'l edition) Francesco Conte and Jim Campbell have a tried-and-true method for picking the portfolio of micro-cap stocks that dominate their Fleming Frontier European Discovery Fund. They use up lots of shoe leather. The two, who co-manage the fund, pick companies one by one. That's an average of 1,000 company visits and interviews a year. ''Today is a pretty normal day, and I've already seen four companies,'' said Conte recently. The mission: to mine the small-company listings of Continental Europe for undervalued gems. Conte's and Campbell's eclectic portfolio includes Diosos, a French wine-barrel maker; Mondo TV, an Italian cartoon company; SR Teleperformance, a French call-center operator; and Poolia, a Swedish temporary-employment agency. Eschewing sectoral or regional themes, the pair meet entrepreneurs constantly, at home in London or on the road, keeping an ear cocked for tips from local stockbrokers all the while. The labor-intensive sleuthing pays off big. The fund, which had $237 million in assets as of Sept. 30, reaped a 156% return in the preceding 12 months. Average annual returns exceeded 48% for the past five years. That stellar record made it No.1 in BUSINESS WEEK's five-year, risk-adjusted ratings for offshore funds (tables, page 84). Conte and Campbell reaped the top spot for one-year returns, too. Total gains since the fund's March, 1995, launch were 816% as of Sept. 30. The HSBC Smaller European Companies (excluding Britain) Index, the fund's benchmark, rose only 66% in that time. FEW RIVALS. Fleming Frontier European Discovery Fund is one of the few funds that bet on European micro-caps--companies with less than $150 million of shares available for trading. Why so little competition? Potential rivals shun the work of tracking under-the-radar companies, Campbell guesses. Can Campbell and Conte keep it up? The pair owe the fund's spectacular performance from October, 1999, to October, 2000, to the euphoric tech markets. Now, they're betting that service businesses--about 34% of the portfolio--can maintain the alchemy. But producing double-digit--much less triple-digit--numbers this year won't be easy. Higher interest rates and oil prices have nipped Europe's long-heralded growth spurt in the bud. HSBC's index is down about 25% since its mid-March peak and is off 16% for 2000. Last year's rave stocks--Internet, telecom, and software companies--have all been slammed. By the end of the second quarter, Campbell and Conte had cut technology from 53% of the fund to 43%, though it's still their top sector. Conte insists that's no liability. Tech isn't just pie-in-the-sky dot-coms. ''There are 100 types of tech companies,'' he says. Still, the tech rout has altered their strategy. Now, they take profits sooner. ''In the first quarter, we were more willing to run [with a stock],'' he says. Campbell, the fund's Scottish-born founder, spent seven years analyzing small-cap stocks for the Ivory & Sime PLC fund group in London before coming to Fleming. Conte, who covered small caps in his native Italy for Schroders PLC, came to Fleming in 1998. The two say that France, Germany, and the Scandinavian countries--Europe's centers of tech innovation--are the best micro-cap hunting grounds. They mine France's Nouveau Marche and Germany's Neuer Markt, typically buying new listings after the IPO glow is off and shares are cheap. When they find something that looks like a deal, they run it through their computer models to see if it's fairly priced or a neglected bargain. Among their discoveries: that Europe's need for flexible labor has spawned a boom in the temporary-employment business. The fund's top 10 holdings include Sweden's Poolia, whose share price rose 98% in 2000. Once nonexistent in socialist Sweden, the market for skilled temps to staff call centers or financial-services offices grew 60% to 65% last year, says Campbell: ''Mothers who weren't working 20 years ago are now quite happy to work three days a week.'' The Fleming fund's life span has coincided with a favorable period for new companies. The entrepreneurial fever that has raged in the U.S. for the past few years has caught on in Europe finally. More Europeans are starting companies. And the number of venture capitalists operating in the region has risen dramatically. But rising interest rates, low growth, and high oil prices could kill the boom. Conte admits that energy prices are a cloud: ''European economies are nowhere near as efficient at absorbing an oil shock as the U.S.'' He says that he and Campbell can profit from Europe's restructuring even in a downturn. They'll need all their sleuthing skills to do so. By Julia Lichtblau in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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