Dean Tenerelli: «I Am Constantly Learning»
On the 10-year anniversary of Dean Tenerelli’s stewardship of the T. Rowe Price European Equity strategy, we take time to look back at the highs and lows he has experienced.
Mr. Tenerelli, over the past 10 years, your performance track record shows remarkably consistent returns. Given the extremes we have seen in market direction, risk and style, to what do you attribute this consistency?
The consistency of the performance comes from diligently focusing on good quality companies. I only invest in what I believe to be high quality businesses that I understand and which have strong management teams in place.
If these companies execute on their strategy, selling the products or delivering the services that you expect them to, then the portfolio tends to reflect this and deliver performance in a similar way.
«The investment strategy has remained largely unchanged over the past decade»
Where this focus on company quality is really borne out is during periods of uncertainty, when the market changes direction, for example, or when sentiment turns negative. Time and again it has been proven to me that strong businesses, run by capable management, have the ability to adjust their processes and practices when necessary and effectively adapt to a changing environment.
In doing so, they have been able to maintain pricing power, stay competitive and very often emerge from the downturn in an even stronger position.
Has your investment strategy or philosophy changed or evolved over the past decade, perhaps in the face of the various crises Europe has seen during this time?
While the investment strategy has remained largely unchanged over the past decade, I am constantly learning. The market and economic environment is always changing and so, as investors, we are always encountering new and different scenarios. An important lesson learned from the 2010-12 euro sovereign debt crisis was that, even in the most extreme circumstances, the strategy really does hold up.
«These types of companies have shown willingness to invest in their businesses»
By investing in quality, operationally robust businesses, the majority of our holdings proved relatively resilient throughout the crisis, and in fact a number emerged in even stronger positions.
Even in such difficult circumstances, these types of companies have shown willingness, and an ability, to continue to invest in their businesses, to try and develop new products or improve services and so maintain, or even grow, their profitability. In turn, these are the companies that excelled as we emerged from the crisis period.
Are there any specific countries or sectors that have been particularly rewarding over the period in question? Similarly, which sectors or countries have disappointed?
We tend to be fairly fluid with our country and sector allocations, focusing more on individual stocks and adopting a broadly diversified approach to portfolio construction. We are not wedded to any particular country, sector or stock, but rather look to invest in quality companies that appear undervalued and so offer good upside potential.
«We had the opportunity to buy a number of good quality companies at significant discount»
Having said that, Spain has been a very good area of investment for the portfolio in recent years. Just after the peak of the sovereign debt crisis, towards the end of 2012, we began building a large exposure in Spanish companies.
Having been massively sold off, we had the opportunity to buy a number of good quality companies at significant discounts, with the purchases notably broad-based; from very defensive regulated utilities (Gas Natural, Enagas) through to more cyclical media companies (Mediaset Espana) and the Spanish stock exchange operator Bolsas y Mercados.
The recovery of many of these stocks since purchase has been very beneficial to the portfolio’s performance over multiple years.
And more recently?
I have been adding exposure in the industrials area, buying select stocks that have become relatively cheap in my view. The industrials sector is traditionally an area of strength in Europe, populated by a number of quality, global businesses. I have added two automotive suppliers whose share prices have fallen materially.
«This allows us to buy quality»
Both companies have exposure to emerging markets and have been negatively impacted by recent concerns about slowing demand from China, as well as the general turn in sentiment against the automotive sector.
This allowed us to buy these quality, industry leading businesses that we have followed for some time, at what look like attractive valuation levels.
