In unearthing hidden gems, Denham keeps his ear to the ground to discover what is going on in sectors that usually teem with innovation – biotech, technology, and e-commerce. Market contacts introduce him to early-stage companies through invites to roadshows and meetings with management.

‘What I’m looking for is a basic introduction to companies, what their milestones might be, what the risks and rewards might be, their products, and their technologies,’ he says. ‘It’s a learning experience and then, over time, you realise which ones might have a better chance of achieving success.’

An Argenx roadshow and meeting with the CEO of the Belgian biotech company led to an investment at a time when most European fund managers had never heard of it. Denham added it to Carmignac Portfolio Grande Europe – his pan-European fund – around four years ago and has owned it in FP Carmignac European Leaders since it launched almost three years ago.

Today, Argenx ranks in the top ten of both funds and is regarded as one of Denham’s best investment in recent memory on the back of successful clinical trials of its drug for severe autoimmune diseases.

But with the potential for success comes the risk of failure, of course. Loss-making German food delivery company Delivery Hero, which was added to the fund in early 2021, was a detractor to the fund's performance.

Amid rising inflation and the prospect for higher interest rates – as well as the rotation to value stocks that materialised this year – Denham reduced it to a 1% position first, and eventually sold out entirely.

In its 2021 results, the company extended the timeframe over which it would reach breakeven. Its shares dropped almost 70% between a peak in mid-November last year and when it released the results in February.

‘When the thesis breaks down, whether it’s in the innovation or high-quality part of the portfolio, we sell,’ he says.

A focus on market leaders with strong pricing power is helping to shelter the fund from rising inflation. However, Denham recognises that the Russia-Ukraine conflict is compounding the issue in Europe.

While the fund has no direct exposure to either Ukraine or Russia – and little indirect exposure – the war is adding complexity to the equation of understanding companies and their future profits. Renouncing its reliance on Russian energy adds to the cost pressures facing Europe.

‘I see it as a continuum of a lot of the supply chain disruptions that companies are experiencing,’ says Denham.

Political risk around energy supply is creating opportunities too, chiefly in sustainability – a key focus for the fund. Europe leads the world in renewable energy. The fund owns Denmark’s Vestas and Ørsted, the world’s leading wind turbine manufacturer and largest developer of offshore wind power, respectively.*

Many of the fund’s niche industrial names indirectly benefit. Irish building materials company Kingspan is the market leader in high performance insulation products, while increased demand for energy efficiency and electrification bodes well for French electrical engineering company Schneider Electric.

‘It sells equipment to utility operators for so-called smart grids to enable the grid to incorporate a wider variety of power generation sources and supplies electrical equipment to the growth area of data centres,’ says Denham.

Another theme that emerges from his stock-picking is digitisation, which has lower penetration in Europe than the US. The fund owns market leaders like German software company SAP and Dutch electronic payments business Adyen.

Smaller names include Nordnet, the leading online fund and stock trading platform in the Nordic region, and Amadeus, the Spanish travel software company that is benefiting from the reopening of economies post-Covid.

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