CEO Sessions: Active stock picking can help investors to chart the potential in Europe

AD: Ali Dibadj
RSF: Robert Schramm-Fuchs
LN: Luke Newman

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Hey, everybody, it’s Ali Dibadj, the CEO of Janus Henderson. I’m here at the UK Investor Conference. Lots of energy, lots of people in the crowd. I’m really happy to be here with Luke Newman from our Absolute Return business, and Robert Schramm-Fuchs from our European Equities business. Guys, one of the things we’ve been talking about for quite a bit over the past little while is the interest outside of the US, and in particular, in Europe. What do you think about that scene?

RSF: Well, I think that last year (2025), Europe had a very good year, and I believe that the opportunity set in Europe is still underappreciated. We look at investor positioning, we look at valuation levels of Europe versus the rest of the world, and there’s a significant upside potential. And I think the market underappreciates the amount of global champion stocks that we actually have in Europe that are just listed in the wrong postcode.

LN: I totally agree. One of the joys of being an active stock picker in this environment, with the cost of money having moved away from zero, is that dispersion levels are high. So, there’s much more rationality in markets. If we can find attractive companies, particularly for our long book, it matters less where they’re listed. So, a much more rational environment, so Europe is as attractive as any other region. What I would say, areas like the UK are very global in nature. So, we have the ability to invest anywhere globally, but actually, we’ve been heavily overweight and long Europe and the UK for the last couple of years, and results have been good.

The FTSE 100 outperformed the S&P (S&P500 Index) last year, which not many predicted this time last year.

AD: So, Europe sounds like a really interesting place to invest, given what you just said. A lot of our clients ask about geopolitics and geopolitical risks in Europe. How do you think about that?

LN: I think it’s right to be cautious at the moment. I think the importance of being liquid, being flexible, is going to be as important this year as it was last. And we think about the ability to protect, not only against the geopolitical issues and domestic political problems that Europe had, but also globally. The ability to protect against the tariff policies and the impacts, not just in Europe, but around the world, were crucial. So, for us, using the flexibility of our tactical book, using the short book, which is an active stock-picking process, not just a hedging tool, should be as important this year as it was last.

DJ: Robert, what do you think?

RSF: Well, look, I think Europe’s clearly exposed to all the major geopolitical challenges in the world. One is, of course, the realignment of the superpowers. Now, the opportunity for Europe here is clearly defence spending that we can invest on. But there’s also the challenging demographics in Europe, the ageing. And that comes, I think, with reform potential, because we’re seeing a drive to get more household savings, which are very cash-rich, to invest directly in the stock market. It’s a very narrow, not very liquid, stock market in Europe.

And then the third angle is the cost of capital challenge. European sovereigns are perceived to have maxed out, but that is putting a lot of pressure on these sovereigns to finally trigger these reforms that we’ve been waiting for, for many years.

DJ: So, sometimes people think of Europe as a very homogenous entity. It’s clearly not. It’s quite heterogeneous. Where are some opportunities and maybe some risks as well?

RSF: So, the biggest risk in Europe is clearly the lack of growth in itself, which put a lot of pressure on societal cohesion, politics and so on. But the opportunities it gives us are not just the reforms that we foresee happening over the next few years. But there are also clear investment opportunities here and now. Remember, the stock market, especially in large cap land, is not the economy. It’s not politics. The investment opportunities we see here in a rising macroeconomic environment are not just defence, banks, but also consumer discretionary, infrastructure spending, construction. So, there’s a lot of opportunity set in Europe right now.

LN: And I would agree with a lot of what Robert said there. One of the things we’ve been fixated on for the last few years has been the persistent inflationary pressures. And we’re not calling an end to inflation, but we’re starting to see some deflationary pressures beginning to creep in. So, for us, within longer-duration areas of the European market, like utilities or real estate, actually, we’ve moved those from our short book to our long. So, naturally, companies that would benefit if we started to see interest rate cuts and some more deflationary pressure.

Defence and aerospace, still a big area for us, and perhaps an area that struggled last year that we’re particularly interested in. Some of those, really, the quality factor – those businesses, particularly software B2B businesses that have been interpreted as AI losers, have been interpreted as potentially being disrupted by these billions/trillions of dollars that are going into AI infrastructure. We think there’s some really interesting businesses there, particularly those that have accelerated through the last 12 or 24 months.

So, they’ve derated. The finger of suspicion is pointing at them, but actually, Europe has a lot of those high-quality franchises, and we’re seeing some really interesting opportunities.

DJ: Luke, who goes long and short, thank you very much, from the Absolute Return team. Robert, picking up the best stocks in Europe on the equity side. Thank you for everything that you do for our clients navigating all this turmoil and delivering for them.

Thank you all for joining here from the UK.

Active investing/stock picking: An investment management approach where a fund manager actively aims to outperform or beat a specific index or benchmark through research, analysis, and the investment choices they make.

Cost of capital: The average cost to a business to run its day-to-day operations, before generating a profit.

Cost of money: In this case, a reference to interest rates, which impact the cost of borrowing. Interest rates have moved back towards the long-term average following a long period of low interest rates.

Derated: Where a company’s financial ratios, such as the price-to-earnings (P/E) ratio, have fallen, in response to business or market uncertainty, or in the case of a bond, a lower credit rating.

Hedging tool: Hedging is a trading strategy that involves taking an offsetting position to another investment that will lose value as the primary investment gains and vice versa. These positions are used to reduce or manage various risk factors and limit the probability of overall loss in a portfolio. Various techniques may be used, including derivatives.

Inflation: The rate at which the prices of goods and services are rising in an economy. The consumer price index (CPI) and retail price index (RPI) are two common measures.

Large cap: Well-established companies with a valuation (market capitalisation) at the larger end of the market scale.

Short position: Where an investor borrows then sells what they believe are overvalued assets, with the intention of buying them back for less when the price falls. The position profits if the security falls in value.

Stock pricing dispersion: A measure of much the price movements of different stocks (for example, in a benchmark) differ from each other, or the average return of the benchmark.

Tactical/short book (long/short investing): An investment technique where investors take ‘long’ and ‘short’ positions. The intention is to profit from combining long positions in assets (for example, purchasing stocks) in the expectation that they will rise in value, with short positions in assets expected to fall in value. This type of investment strategy has the potential to generate returns regardless of moves in the wider market, although returns are not guaranteed.

Tariff policies: A tax or duty imposed by a government on goods imported from other countries.