Insurers,Technology Top List for Germany’s Best-Performing Funds in 2020

December 10, 2019 by Richard Weiss

Even in Europe’s industrial heartland, the best investors are shunning manufacturing stocks and putting their money in local tech companies.

DWS Concept Platow, this year’s top-performing German equity fund, has half of its 222 million euros ($246 million) invested in software, tech-services and insurance stocks including IT firms Cancom SE and Datagroup SE and reinsurers Talanx AG and Hannover Re. It’s up 41%, the most among more than 60 funds focusing on companies from Europe’s largest economy, Bloomberg data shows.

Managers Christoph Frank and Roger Peeters look for, among other things, profitable companies with moderate valuations relative to book value and earnings, and a business with barriers of entry that allows for pricing power. They sold cyclical stocks like forklift maker Jungheinrich AG and engineering firm Duerr AG before a wave of profit warnings from such industries rocked Germany this year, buying shares including Talanx, Hannover Re and Munich Re.

“Sector rotation as a consequence of our stock picking process has worked extremely well for us this year,” Peeters said in an interview.

The investors, who worked as journalists at economic and market newsletter Platow Brief before becoming fund managers, haven’t owned banks or utilities for years and their exposure to the auto industry — one of Germany’s biggest — is limited to a smaller stake in Volkswagen AG.

Smaller companies, a data-driven investment process backed by relative strength indicators, and a lack of hedging has helped the fund keep rivals at bay, the managers said.

The fund beat its nearest competitor, a small-cap portfolio run by giant asset manager DWS Group, by more than 10 percentage points. Concept Platow has DWS in its name because the firm distributes the fund and double-checks that it sticks to its rules. Frank and Peeters make the investment decisions for the fund, which began operations in 2006.

While they aren’t compelled to invest in small caps by definition, their selection process often suggests lesser-known companies and frequently brings up stocks from the same industry, the managers said. Among its biggest holdings as of Oct. 31 were Mensch und Maschine Software AG, market value 687 million euros, and IT services company S&T AG, with a value of 1.3 billion euros.

Entrepreneurial-run companies — the small to medium-sized businesses that form the backbone of the German economy — often make up major parts of the portfolio, the managers said.

The fund usually remains invested even when markets decline, as the cost of hedging will add to the missed performance in any subsequent recovery.

“We are strong believers in stock picking and we screen the entire universe of German stocks,” Frank said, but “we don’t believe in market timing.”

To be sure, their fund lost more than the wider indexes did in the market slump at the end of 2018, with some of this year’s outperformance stemming from the following recovery.

“We mostly decide based on numbers, but we also speak a lot to the executives running the companies we invest in,” Peeters said, adding the two of them had 82 face-to-face meetings with company representatives in November alone.