3/13/2022 11:00:00 PM

Why Germany has created strong investment opportunities

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Germany, the strongest economy in Europe, has provided great investment opportunities for our global funds. Toby Woods, Senior Investment Analyst for Global and UK & Europe funds, who is based in London, explains.

Leading economy and large exports
Germany is the leading economy in Europe (it’s about a third bigger than the UK or France) and it’s the third largest export country in the world, behind China and the US. Geographically, it sits in the heart of the continent, so it benefits from easy access to other European markets while also having excellent trade routes from Northern European ports that link to the rest of the world. Furthermore, it has a highly educated population (almost 60% speak English for example), yet also benefits from additional EU labour, especially from Eastern member states.

Germany experienced the ‘Wirtschaftswunder’ (economic miracle), which refers to the rapid reconstruction and development of the German economy after WWII. During this period, that spanned a few decades, Germany hosted rise to some of the largest companies in the world (such as VW, BMW, Siemens and BASF, amongst others) and a huge number of supplier companies. Germany is sometimes known as “the factory of the factory of the world”, as its engineering excellence is now present throughout equipment used in manufacturing globally.

Over the last 10 years, Germany has seen a gradual shift towards more spending at home (and in Europe) which has helped boost the economy, and this is set to remain under the stewardship of the new Chancellor, Olaf Scholz. We view this as supportive for the whole of Europe. 

In the current Ukrainian crisis, Germany is taking a leading role amongst the NATO countries by announcing an increase of defence spending, denouncing President Putin and willing to decrease the reliance on Russian gas imports. While this may cause some short-term pain, we applaud the decisive actions taken and believe Germany’s (and Europe’s) economy is strong enough to withstand the current shock.  

Long-term investment horizons
To this day, Germany has retained the discipline that it learnt in the post-war years with its ‘social market economy’, a concept that promotes free-market capitalism and allows the government to focus on social policies. It’s a massive success case, and presents investors with lots of good opportunities as, generally speaking, German company executives plan for far longer investment cycles. Since many businesses still retain large family ownership, they look to invest and build for a generation or more, versus 10 years (or less) which is typical of, say, UK or US companies. This fits with Pie’s focus of providing long-term wealth.

What German companies have proved good investments for Pie?
We aim to invest in high-growth, quality companies with great management and competitive advantage.

hGears - owned in the Global Growth and Global UK & Europe funds
hGears is typical of a German ‘Mittelstand’ company (i.e. strong local roots with a focus on engineering excellence). hGears is a global leader in niche gear components for the e-bike, electric vehicle (EV) and e-tool industries. E-bikes are hugely popular in Europe in particular, and demand is increasing around the world.

Nexus - owned in the Global Growth and Global UK & Europe funds
Nexus is a supplier and developer of software for hospitals. Germany has ring fenced €4.3bn in the Hospital Futures Act aimed at digitalizing and strengthening regional healthcare systems, which is a large tailwind for Nexus.

Encavis - owned in the Global Growth, Global UK & Europe and Conservative funds
The company is an owner and operator of renewable energy assets (wind farms and solar parks). Nowadays it is a pan European business with assets owned throughout the continent. It is, however, a typical result of German policy as the country has been a leader in promoting and developing renewable technology and assets for the last 20 years. German policy has now manifested itself throughout the continent with the European Green Deal, a far reaching EU directive that is designed to pivot the whole European economy towards a more sustainable future.     

Information is current as at 10 March 2022. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a reliable indicator of future returns. Returns can be negative as well as positive and returns over different periods may vary.