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Dearth by chocolate

Nicolas Sarkozy’s clear win in the French presidential elections should bring many reforms that lead to strong gains for the French equity market.

With Angela Merkel reducing German corporation tax from 38.7 to 29.8 per cent from next January and with many European shares looking undervalued while company profits are rising, European stockmarkets appear very attractive.

Some smaller companies in particular should benefit and there is likely to be much more merger and acquisition activity.

One fund I particularly like is the Threadneedle European smaller company fund. This has over 40 per cent of its portfolio in France and Germany, with around 10 per cent in Switzerland and the rest spread widely.

Fund manager Dave Dudding is AA-rated by Citywire and deservedly so. His fund has more than doubled over the past five years and is up by over 150 per cent over three years to March 31 this year. Over five years, it has outperformed the average European fund by 70 percentage points.

The Threadneedle European team as a whole is outstanding and this fund has outperformed the index consistently.

Dudding looks for companies that have pricing power or market share and operate in an industry with a high barrier to entry. A typical example is Swiss chocolate maker Lindt, which because of its excellent product and 150 years of tradition is able to charge premium prices.

Another is Neopost, one of only two companies in the world which sell franking machines. It is difficult for any new company coming in as they would need a licence from post offices in every country.

I believe that every growth portfolio should have around 15 per cent of its allocation in European shares. I strongly recommend this trust.

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