Planes, Trains, Ukraine and Chocolate

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On  March 10th, my  computer bag, suit carrier and I boarded a flight in Miami, the start of a 2 ½ week journey through Europe where I attended presentations and visited holdings and prospects for the Frigate and Treasure Harbor Folios. Passing through Atlanta and Amsterdam, I landed in Cologne, Germany on Tuesday afternoon.  After taking photos of the famous Dom and visiting the Schokoladenmuseum (free chocolate samples!) , I spent the next three days traveling through Berlin and Frankfurt getting updates on pharmaceutical pipelines, enterprise software, and the chemical and auto industries.

I made my way to London over the weekend to attend the annual CAGE (Consumer Analyst Group of Europe). During a stroll through Hyde Park, I came upon a Ukrainian demonstration against the Russian occupation of Crimea. The potential impact of this incursion came up frequently during my meetings with producers of spirits, dairy products, food ingredients, pasta and chocolate.

Following the conference I traveled to Switzerland, moving in between Zurich and Basel by train and visiting more chemical, anti-infective and travel retail (which sell lots of chocolate) companies. A train trip to Paris, and for two days I was immersed in more healthcare presentations discussing  the impact of the Affordable Healthcare Act, advances in medical technology and biologic drugs. I also glimpsed the potential for personalized medicine and the threats and  opportunities for generic drugs. No chocolate, but there was a nice glass of champagne waiting for me on the evening before I flew back to Miami.

After this eclectic trip, it will take a while to distill the research into investment decisions, but still, as I nibble on  chocolate I had squirreled away, I can offer up some interesting generalizations:

The annexation of Crimea was the constant elephant in the room.  No one wanted to talk about it; perhaps, because the outcome is still uncertain.   Food and drug companies in general felt they wouldn’t be subject to the possible sanctions, but directed me to potential impacts on oil and financial companies – good advice. 

Elsewhere, it looks like Southern Europe has stemmed its decline and will weigh less heavily on income statements.  Meanwhile, the rest of Western Europe is haltingly recovering, while the US has been a bright spot for most companies.

Volatile emerging market  currencies continue to drag on  reported earnings and even with hedges in place, managements are cautious on their future impact. Excluding Russia, Ukraine and distressed South American markets, optimism on emerging markets was strong. China, although volatile, is especially attractive as urbanization pushes to the western regions and the companies follow. There also seemed to be a high interest in Africa – as both a source of commodities and a potential market for goods and services.

So for large companies, cautious optimism seemed to be the theme. Most of them have learned that in a slow growth environment, controlling costs is important – but spurring innovation is key. And from cars to software to drugs, I saw amazing innovations – some developed in-house  and  some acquired from smaller companies. Indeed, the chocolate I am eating is sourced from the Ivory Coast but manufactured by  a small Israeli food company.

During this trip, I met with many interesting small- and mid-cap companies that are growing organically and by acquisition and that may offer very lucrative investment opportunities. It may be  worth while developing another Spoke Fund® to invest in some of these stocks.  Let me know if you want to invest alongside me or if you have any other questions or ideas.

Well, digesting all of this information and considering a new product is going to take a lot of energy.  I better find some more chocolate.

About Retz Reeves

Portfolio Manager of the Frigate and Treasure Harbor Folios.
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