It’s sometimes difficult to know when you’re hearing the truth, especially when dealing with skilled communicators. Susan Levermann – whose €450 mn ($604 mn) DWS Europa Innovation fund is up 61 percent since its October 2005 inception – plainly has sharp ears. ‘A lot of my research is quantitative-driven, which helps me analyze earnings growth and strong fundamentals,’ she says. ‘But I’m also trying to measure against what I’m told as well as what is actually being delivered. If I’m told there’s been a big improvement in the return in equity, but I can’t see it in the numbers, I need to know more.’
Around 40 percent of Levermann’s fund is small caps, where investment risk is high. Small-cap funds in recent years have had a storming time, but interest rates, inflation and raw material costs are creeping up across Europe. Isn’t Levermann tempted to draw up the comfort blanket and dig a bit more into large caps? ‘I agree we must be more cautious on the smaller names, but I’m still very bullish on equities overall,’ she remarks. ‘Investors are so skeptical.’
Levermann, 33, was parteducated at the University of Miami, Florida and appears to have absorbed a large dose of US can-do pragmatism. ‘The experience definitely made me more flexible and more global and helped provide different ways of approaching issues,’ she admits.
One of these is dealing with the tsunami of information that breaks across her desk. Yet a dearth of information – particularly from UK companies – can be just as exasperating, she notes, especially at critical points.
‘A lot of UK companies don’t bring out quarterly statements, so you might get no information for six months of the year,’ she says. ‘Then, suddenly, you see the stock falling two or three days ahead of a big capital increase, even though the company has already been in touch with its largest investors. That’s unpleasant.’
Fund breakdown
About a third of Levermann’s 87- company portfolio is made up of British and Irish stocks. ‘They are more entrepreneurial,’ she says. ‘And it’s easier for UK companies to get access to venture capital.’ Levermann relies heavily on p/e ratios in her stock-picking process.
‘Now that we have comparable accounting standards, I like p/e and cashflow to get at the hard stuff,’ she says. ‘It’s not straightforward, however. For example, you might stumble across a company buying other firms below book value, so they book it as earnings as it’s already a gain. But it’s not a cash gain yet – so it goes in the P&L statement.’
One company she likes is Finland-based rental construction company Ramirent, which leases out everything from cranes to scaffolding across 12 European countries. When she bought in originally, Ramirent had never done a roadshow. ‘In 2004 it had a €350 mn market cap,’ she notes. ‘Now it’s €2 bn.’
She also rates Porsche – to a point. Although the iconic sports car manufacturer is hugely successful, Levermann believes it could improve investor transparency by a huge margin.
‘Its basic profit and loss figures are about half a page in the annual report – I’m not exaggerating,’ she points out. ‘Porsche argues that if it published more details its competitors would find out more.
The company also has a very successful dollar-hedging program, which I guess accounts for a third of its profits in some years. But why do its results have to be such a black box? If you are as good as you say you are, you can open up.’
Maintaining standards
Levermann belongs to the German Society of Investment Analysis and Asset Management’s working group, which focuses on improving standards of reporting. Unusually, German corporate governance codes focus not just on investors and other stakeholders but also on the general public.
‘Right now a lot of people [in Germany] are scared of globalization but you also have people who don’t think twice about buying cheap clothes from China,’ Levermann points out. ‘It’s very important to raise awareness about these issues – and not just in the financial markets – now that we are one global market.’ The liquidity of shares in some European companies is traditionally low, which has a knock-on effect on cashflow and voting rights, so pulling out is less of a threat. Is this changing?
‘It has improved dramatically over time, particularly in Germany, where a lot of cross-shareholdings have been removed,’ Levermann notes. ‘At DWS we don’t just sell a stock – we also make a stand in public. We go to an AGM and communicate our opinions, complaints and advice. It tends to have a big impact on companies if something is said there that later makes it into the press.’
Her philosophy, she sums up, is one of dogged consistency. Whatever strategy you have, she says, ‘it’s about being disciplined and consistent with it. That’s the challenge: every day, whatever your mood.’
