Successful Investing in German SMEs - Five questions to Olgerd Eichler



Transcription of the Video:

Hello, ladies and gentlemen, and welcome to MainFirst’s Investor Update. Speaking to us today is fund manager Olgerd Eichler, who manages amongst others the very successful MainFirst Germany Fund. Mr Eichler, the MainFirst Germany Fund has delivered a performance of around 35% in 2017. How did you do that?

There are two components at play here. Half of the gains stem from the market, of course, with equities already up more than 15% this year. Our product has actually gained around 17% on top of that, and this came about as a result of our better stock-picking. How did we manage this? Well, let’s take fund companies in general as an example: most portfolio managers will focus on whether to overweight or underweight Allianz, which has an index weighting of around 6%. Siemens has an even higher weighting of 7%. And let me tell you: we hold neither! In other words, we deliberately distance ourselves somewhat from the index and look for the movers instead. That is, stocks that double or triple. The likes of Allianz and Siemens are just not going to do that.

Doublers and triplers are what every investor really wants. Specifically which ones does your portfolio hold?

In terms of numbers to date, this year we have had one tripler, Siltronic, and we have also had a few that almost doubled – now this is based on eleven months – including RWE, König and Bauer from the printing sector and Sixt the logistics company.

You make it sound easy enough. But how do you do it? How do you find these companies and how can you be so sure they will deliver what you expect of them?

Well, even we slip up now and then but, thank goodness, most of the mistakes we make are generally minor. So, we aren’t totally off the mark. But to focus on the positive: there really are very few companies out there which still have a lot of potential. They are difficult to pinpoint, it’s true, but what makes them stand out? They are generally companies that are quite young but growing fast, improving their margin and have great balance sheets; maybe they have a conservative, prudent management with a long-term view but, above all, they are still very cheap. They are often SMEs; frequently companies we call hidden champions, which are highly specialised, which occupy a niche because they have secured an excellent position in the market and have a long record of being one of the best in their field.

Once you find a hidden champion and you hold it in your portfolio, what next? How long do you hold on to it for and how do you follow it?

Let’s take Sixt as an example. We’ve held Sixt for a good few years now and it has, I think, no less than tripled since we’ve been invested in it. It is a company that is actually in an industry where growth is not all that strong, perhaps 4% or 5% a year. But this company keeps on gaining market share. It already occupied rank one in Germany with almost a third of the market, and in Europe it is number two with a market share of a little over 20%. But six years ago it entered the US market as well, where it has a market share of just 1%. Of course, the US market is twice as big as the European market. Imagine this company eventually capturing 5%, or perhaps even 10%, of the American market. This would mean the company is capable of increasing turnover by up to 100%; hopefully, along with a greater margin. In other words, there is genuine potential there, plenty of opportunity, and this is why we still like the stock today even though it has become quite expensive already. But it is reliable and it has great prospects. Last but not least, the founder is also the CEO.

Speaking of prospects and 2018, we are all looking ahead to the New Year. How do you think 2018 will go for German small and mid caps?

Starting with the economy, we firmly believe that it will continue to grow, perhaps even 2% in Europe, and the central banks won’t hike up interest rates too high too quickly on us. I believe they will take their time, they will go about it very carefully because they don’t want to stifle the economy. If we’re right in both respects, the equity market will make a double-digit gain.

Thank you very much for this positive overview. We wish you all the best in the coming year.

Thank you.