Value Column von Hans Peter Schupp
7 April 2025
Each Chaos bears opportunity
Hans Peter Schupp, Vorstand der Fidecum AG und Portfoliomanager des Contrarian Value Euroland Fonds (ISIN: LU0370217092) outlines how Europe should response to the U.S. tariffs and how he manages the crash in his portfolio.
Over the past week, you will no doubt have read enough about the ludicrous details of US customs policy. However, some points are so important that they need to be mentioned again: A trade war based on tariffs and counter-tariffs is the most nonsensical economic policy an economist can imagine. Tariffs act like taxes and are ultimately paid for by the domestic population. They damage the international division of labor and reduce growth rates, productivity and common welfare.
Counter tariffs not a sensible strategy
That is why counter-tariffs are not a sensible strategy. They are retaliation, along the lines of: “If you raise your tariff, I’ll raise mine”. This may be a good political sell, but economically it usually misses the mark. It rarely affects producers directly. Prices rise in their own country. Companies that have to buy more expensive primary products see their profit margins threatened. Consumers are surprised at the supermarket checkout. Counter tariffs look like defense on paper. In reality, they are more like a boomerang.
The EU should therefore under no circumstances counter with tariffs on imports from the U.S., especially not on such irrelevant products as bourbon whisky or Harley Davidson motorcycles. Instead, it should seek talks with the major industrialized nations of East Asia, but also with Mexico and Canada, on free trade agreements along the lines of the recent Mercosur agreement.
How a portfolio manager reacts to such a situation
In this confusing situation, it is more important than ever to know exactly which companies you are investing in. Only then can opportunities and risks be reliably assessed: How high is the share of turnover in the USA? Which business models are actually affected – and which only appear to be?
We have long since done this homework. The result: around 16 percent of our portfolio companies‘ turnover comes from the USA. By comparison, the figure for the 300 companies in the EURO STOXX Index is around 20 percent. If these sales were to cease completely and profits were to fall by a third as a result, the estimated price/earnings ratio in our fund would rise from 7 to 10. Not optimal, but still a reasonable valuation.
We have taken a close look at the three companies in our portfolio with the highest US sales and come to the conclusion that there is no need to panic here either:
– Dutch insurer Aegon (ISIN: NL0000303709) generates 64% of its turnover in the United States. But insurance companies do not travel by container ship. They are immune to customs duties.
– 57 percent of the turnover of the French company Quadient (ISIN: FR0000120560), which operates in the mail processing sector, comes from North America. Sounds dramatic, but it’s not. The majority is accounted for by leased franking machines – a business with long terms, stable earnings and little burden from customs duties. Moreover, the future of the company lies in the development of software for digital postal systems and parcel stations. This is written where it is needed – not where it could be taxed.
– More than half of Klöckner & Co’s (ISIN: DE000KC01000) sales are generated in North America. But in North America – through trading in steel and metals in the USA. Not through exports to America. Is the company affected by tariffs? Hardly.
There is opportunity in every chaos
Of course, uncertainty on the stock markets will remain high in the coming days, weeks and perhaps even months. Nobody can know today how global trade will develop in the future. First of all, the risk of inflation and recession in the USA is likely to increase. This is not a good prospect for investors in U.S. equities, especially in view of the still high valuation.
However, tariffs will not bring the world to an end. According to initial calculations by the well-known German Ifo Institute, the new US tariffs would reduce German gross domestic product by 0.3% this year without retaliatory measures by the EU. However, this is offset by the growth opportunities arising from the fiscal stimulus provided by the new German government’s debt package. With the necessary structural reforms, economists estimate the possible positive growth effects at between 0.75 and 1.50 percent per year.
All in all, it remains to be said: Trade conflicts are burdensome, but not existentially threatening. This is because companies will also adapt to this new situation. It is now important to analyze soberly and not make any hasty decisions. Those who know the companies will identify exaggerated price setbacks as such and can use them as an investment opportunity.
Our investment apporach:
Our Contrarian Value Euroland Fund (ISIN: LU0370217092) has remained model consistent since 25 years: we invest in undervalued companies with a solid business model and a viable potential. We act with the mindset of an entrepreneur and buy stocks, which are neglected by the market.
About the author:
Hans Peter Schupp, is a managing partner of Fidecum AG and the portfolio manager of the Fidecum Contrarian Value Euroland Fund
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