European companies offer attractive investment opportunities Source:

“We hold over 500 management discussions each year”

The Frankfurt-based investment boutique CHOM CAPITAL is fully committed to traditional stock picking with a focus on Europe - the region the two fund advisers and managing partners of CHOM CAPITAL, Christoph Benner and Oliver Schnatz, know best. In the interview with ChampionsNews, they explain how they select the right stocks for the CHOM CAPITAL High Conviction Europe UI and why it is crucial to fully understand business models.

Christoph Benner, Managing Partner CHOM CAPITAL Source: CHOM CAPITAL
Oliver Schnatz, Managing Partner CHOM CPAITAL Source: CHOM CAPITAL

ChampionsNews: Mr Schnatz, last year, you launched the CHOM CAPITAL High Conviction Europe UI (DE000A2DKRM6 ). This fund again reflects your active and strictly fundamental approach. What are the main differences compared to the CHOM CAPITAL Active Return Europe UI?

Schnatz: The CHOM CAPITAL High Conviction Europe UI is the logical continuation of our successful philosophy for investing in companies with low market capitalisations (small caps). This universe, which is substantially smaller than that of the CHOM CAPITAL Active Return Europe UI (DE000A1JUU46 ) still offers extremely interesting companies with very distinct value drivers. It also tends to be under-researched so that we can identify attractive value potential. In addition, the fund has the flexibility to hold significant cash positions and use conservative hedging instruments. The fund stands out for this ability to actively manage its investment quota combined with the stock picking expertise of CHOM CAPITAL we apply to the segment of high quality small caps.

ChampionsNews: You continue to focus on Europe. Why do you prefer this specific region for selecting your investments? Is your European universe limited in any way or is your stock selection entirely unconstrained?

Benner: Our investment philosophy is centred on the fundamental attractiveness of the individual company. A key aspect for determining this attractiveness is our access to the company’s management. We want the ability to discuss the company’s development and particularly its strategy directly with the decision-makers of all our portfolio candidates. And we can largely achieve that in our European universe. We hold over 500 management discussions each year. Our small-cap approach excludes all companies that can be considered illiquid according to traditional criteria.

Our investment philosophy is centred on the fundamental attractiveness of the individual company

Christoph Benner ,
Managing Director CHOM CAPITAL

ChampionsNews: Please give us two recent examples of successful high conviction investments.

Schnatz: One example is Carl Zeiss Meditec, a company that offers very high quality products for eye surgery such as microscopes, the related diagnostics and artificial lenses. Artificial lenses in particular are a growth product that is driven by demographics. Carl Zeiss Meditec is consistently gaining market share with this premium product. The company also has a very strong balance sheet with significant cash holdings that give the company scope for acquisitions. The French company MGI Digital has also done very well. It offers very innovative digital printing technologies that allow for instance to print RFID radio chips on the back of labels in a single step to facilitate product tracking through the logistics chain. A sizeable investment of the much larger Konica Minolta in MGI and the subsequent co-operation in product development and marketing highlights the technological strength of the company.

ChampionsNews: How do you deal with single security and portfolio risks?

Benner: As a rule, our portfolio is sufficiently diversified to mitigate single security risk. Although we invest unconstrained of country, sector and index considerations, we still take care to avoid “risk concentrations”. We strongly believe, however, that in-depth insight into company fundamentals and close contact with the company is the best risk prevention as it allows us to identify issues early on. 

Date of issue: 5/24/2018