2021 European Equity Outlook: An expanding set of quality growth companies

Portfolio Manager Donny Kranson discusses how consumer-oriented companies navigated the pandemic and explores long-term shifts in consumption.

• While a second wave of COVID and more lockdowns will challenge companies, markets are pricing in the end of the pandemic. Governments and central banks have tools to combat economic issues through stimulus and low interest rates. But over the long run, earnings growth at quality companies will be a primary driver of returns.
• There are fast-growing companies and global businesses in Europe, such as luxury companies LVMH and Ferrari, online payment platform Adyen, and consumer staples stalwarts Unilever and Nestle.
• Large consumer staples companies successfully navigated the pandemic by managing their supply chains to manufacture and distribute their goods safely, and many already had the infrastructure in place for online retailing. Established brands also benefited during the pandemic as there was less experimenting with new products. However, these companies need to ensure that consumers continue to have a great experience with their products in order to retain them.
• In consumer discretionary, travel and travel retail were impacted, but demand for luxury goods rebounded when lockdowns ended.
• Every major downturn is unique. However, investors can experience less turmoil with a portfolio of companies with strong balance sheets and understandable business models, which are trading at sensible valuations. We believe high quality growth companies can offer a steady compounding of earnings through the cycle.

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