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Thinking small

With most European markets 20-30 per cent off their levels since the start of the year, it is time to start dipping into some European shares.

It is almost impossible to forecast the bottom of this volatile bear market but some good shares along with the not so good have fallen significantly and there is a lot of money to be made over the next two or three years.

I believe that small concentrated portfolios of growth shares without reference to any benchmark are the answer. I particularly like Senhouse Capital, a comparatively new boutique backed by Peter Hambro and chaired by Joe Scott Palmer, former CIO of Martin Currie, and managed by proven European stockpicker Julian Pendock. It should be highly profitable over the medium term.

The manager chooses companies with high barriers to entry and/ or distinct products or services which ensure long-term competitive advantages and pricing power. He also likes mature companies with healthy cashflows and companies where it is possible to forecast cashflows and earnings.

He also invests in companies which are undervalued and are likely to be reappraised. Pendock invests in only 20-25 companies at a time.

One example is Subsea 7, which is a global leader in deep sea drilling and servicing. This company should do particularly well as big oil reserves are getting harder and harder to find. For example, the Brazilian Tupi field with a potential of 33 million barrels is at a depth of 5,740 metres. So Subsea 7 should make bigger profits in the future.

I believe that this small, focused fund represents an outstanding opportunity for all growth investors at the present time.


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