US and Asian giants dominate the technology sector, but despite being relatively minor-league, there are still interesting opportunities to be found in Europe.
From Google to Amazon and Tencent to Alibaba, the 10 largest internet-related companies are all American or Chinese. European opportunities tend to be more niche.
‘Europe is not a very good place to invest in tech as it has not produced any giants,’ says Roland Grender, a senior analyst on the Crux European Special Situations fund.
‘We have found some attractive stocks on a bottom-up basis, but with platforms like Facebook and US-listed Chinese companies like Alibaba, the States still has the best choices.’
He pointed to Scout24, a German digital marketplace offering an online platform for property and car advertising. The firm is said to be the country’s leading provider in its field.
Ströer, another German company, active in online advertising for small businesses but also the country’s largest email portal, is another example. Half of its operations however, are still in the physical billboard-advertising market.
A European problem cited by many, including Grender, is the lack of B2B digital businesses both in and beyond online retail, as the general trend is the continent is to focus on the consumer.
European tech is undervalued
Information technology is the trust’s fourth largest sector position, after financials, industrials and healthcare.
He highlights SAP, the German software company and one of the best known European names in the field, that has seen its share price rise by just under 75% over five years.
Stevenson also likes Amadeus, a Spanish IT provider for the global travel and tourism industry, the shares of which have increased almost threefold since November 2013.
‘So long as others think [that Europe does not have good technology companies] there is more chance that they will soon wake up to the fact that some of the world’s leaders are actually based in Europe,’ says Stevenson, who mainly invests in France, Germany, the Netherlands and Switzerland.
‘Eventually they will have to buy the stock. And these things are the faction of the valuation, with the possible exception of SAP, which is more expensive than Oracle because it is widely regarded as a better company.
'But most of these companies are at a big discount compared to their peers in the US.’
Although describing SAP as probably the only established European tech company, Grender also names a basket of IT services firms, like the German KanKom, Norway-based Evry and Spanish Tieto, saying these should not be overlooked.
‘They all have one thing in common,’ Grender says. ‘Parts of them are declining while others are growing. What is declining is the on-premises maintenance services as most data centres are no longer offices, but the growing part is what is based on cloud, digitalisation and data.’
Opponents of this view come even from within Janus Henderson itself. Ben Lofthouse, who manages the Henderson International Income trust, believes that Europe’s newfound popularity with investors is not a reflection of the quality of its companies, let alone its tech scene.
‘Europe does not have any great companies like Facebook or Google. It is doing well because it has been so awful in the past,’ he said.
His exposure to the continent, his second largest geographic allocation after the US at 30%, is on more traditional sectors, with names including ING Group and Deutsche Telekom.
Innovation and tech muddled
The line between being a pure tech company and a business that is transforming by adapting to the increasingly digital needs of the world can sometimes be blurred.
Thomas Brown, the manager of Miton’s European Opportunities fund says ensuring that companies, for example retailers, are positioning for ecommerce is important when choosing stocks.
This is also the reason why he and co-manager Carlos Moreno decided to cut H&M, a name they had held since day one, from their buy list.
‘It became clear that they were not taking their online business seriously at all, so we had to drop it,’ Brown said.
The £176 million fund is overweight the Nordics, being a region that facilitates and encourages innovation, along with Switzerland and Germany
The pair’s top 10 holdings include Wirecard, a German-listed internet technology and financial services provider, and Temenos, a provider of banking software systems, headquartered in Geneva.