Thoughts from My Research Trip to Europe

By Retz Reeves, CFA

After months of planning meetings, setting flights and studying Google Maps, my new I-pad and I flew overnight on March 12th to visit companies in France and Switzerland and attend the Consumer Group of Europe (CAGE) conference in London.

First I visited large and small French health care, media and consumer “champagne” current and prospective holdings. The smaller companies “champagne” (great, my I-pad was autocorrecting*) seem to be more insulated, although not immune, from global deflationary forces and to be holding up better than their larger counterparts, although they each have their own specific challenges.

My mid-week visits to French and the Swiss “cow” financial companies were much more challenging. (It seems my new I-pad was ‘country-specific’ autocorrecting). It appears U.S. financial authorities and banks are far ahead of their European counterparts in establishing and preparing for regulations regarding the definition of risky capital. I believe evolving and overlapping requirements in Europe are challenging banks’ ability to classify and deploy their own capital, i.e. make loans or build up complementary businesses, exacerbating their ability to grow earnings in an anemic economic environment. Considering the compression in valuations, there may be some more good opportunities in this sector, but these need to be measured versus the attractiveness of current holdings.

The rest of the Swiss visits were to smaller companies “cow” involved in logistics, machinery, business services and retail. Overcoming the strong Swiss franc has been challenging for these companies, but for now I am happy with these holdings, and I have found some interesting candidates.

The CAGE conference in London gave me an opportunity to meet more French and Swiss and, also, U.K., Dutch and Irish companies – “champagne, cow, queen’s jewels, windmills, cheese” – centered on food, personal care and consumer goods. In my opinion, depressed raw material prices (such as sugar and dairy but, surprisingly, not cocoa), turbulent emerging markets and volatile currencies has varied impacts on these companies; these meetings will be key in my understanding their strategy and the outlook for their earnings.

Tuesday morning, March 22nd, several of us were waiting to join our meetings when we saw the bombings in Belgium on the business center TV. As the horror sunk in, I exclaimed something typically American that my I-pad didn’t dare record. Just like my colleagues, I attended my scheduled my meetings that day and the next.

Thursday, I warily made my way through Charles De Gaulle airport, slightly un-nerved by the roaming soldiers carrying machine guns, for my return flight.

U.S. Immigration welcomed me back with one question – “What are you bringing back that you declared is worth $50?”

“Chocolate,” I replied.

He smiled, stamped my passport and let me pass.

Back stateside, I am using my PC to access my meeting notes that I had uploaded to Drop Box during my trip. My I-pad when turned on displays one word – “PEACE!”

Please feel free to write or call if you want to talk more about my trip or our international investments.

In the meantime, thank you for investing alongside Cale and myself, and we wish for you a pleasant spring.

– Lauretta (Retz) Reeves

*Autocorrect notations are representative.

About Retz Reeves

Portfolio Manager of the Frigate and Treasure Harbor Folios.
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