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Manager has plenty of experience and has built up an impressive track record
Thursday 12 Aug 2021 Author: Martin Gamble

This fund employs a high-conviction stock specific strategy based on identifying high quality, reliable growth companies which can be bought below their intrinsic valuations.

We like the straightforward, transparent investment approach of the manager, the impressive track record and the scalability of the strategy given the focus on large liquid companies.

It is also worth pointing out that although the companies in the portfolio are quoted on European exchanges, they are, in reality, global businesses. The fund has an ongoing charge of 1.19%

Danish born portfolio manager Christian Diebitsch is a veteran of European stock markets and over the years (he started in 1990) he has ‘collected’ a group of what he calls Europe’s finest companies.

He has followed some companies for more than two decades including secure door opening solutions group Assa Abloy and intimate healthcare products company Coloplast.

He defines the best companies as those with long-term organic sales growth of at least 6% a year, driven by both price and volume. This is around twice the growth rate of GDP.

He is looking for businesses with pricing power and entrenched market positions are preferred as they tend to offer more stability and over time increase their market share.

A good example is Danish insulin provider Novo Nordisk which has a 50% share of the global insulin market with the top three players representing a 85% of the total market.

An ageing global population and increased incidence of diabetes is a key driver of demand which is estimated to be growing between 6%-and-8% a year.

The benefits of operating leverage and good cost management can propel 7% revenue growth into mid-teens annual earnings per share growth.


Diebitsch reasons that if he can successfully identify and invest in a concentrated portfolio businesses that are able to grow their earnings by between 12%-and-15% a year and ensures he doesn’t overpay for them, that that should translate into good long-term returns for investors in the fund.

Heptagon steers clear of companies that are asset heavy with low growth prospects and consequently doesn’t invest in utilities, telecoms, or mature manufacturing companies. Conglomerates are also off the menu to their ‘lack of focus’.

The fund has strong ESG (environmental, social and governance) credentials and doesn’t invest in businesses that do harm to society. Each investment candidate is screened through an exclusion list – no weapons, mining, tobacco, gambling, fossil fuels are allowed.

The manager also runs each investment candidate through an ESG progression checklist to compare the rate of improvement.

The companies that are on Diebitsch’s radar are generally not ‘fly-by-night’ firms but are established businesses which have been around for a long time, around 80 years when averaged across the portfolio.

The oldest is French luxury goods company Hermes which dates back to 1837. The youngest is German online fashion company Zalando which was founded in the early 1990’s.

Diebitsch has reduced the European universe down to his best 40 stocks which he then constantly monitors to see how they perform as a group against the benchmark.

The logic is that if they are better companies with greater than average growth, through time they should outperform the benchmark.

He has discovered that over the long term more than 60% of the stocks outperform.

Fishing from a ‘fish rich pond’ increases his odds of selecting good investments for inclusion in the 20-stock portfolio. If the performance of the universe drops, like it did in 2014, Diebitsch looks to reinvigorate the universe.

‘As a rule-of-thumb, I try to add and take out one company annually to keep the universe somewhat vibrant’ said Diebitsch.


The fund is looking to hold stocks for the long term to exploit the compounding of earnings, but there are conditions under which positions are sold.

If Diebitsch discovers that management haven’t been honest, he sells immediately. If a company’s strategy changes fundamentally, Diebitsch is also minded to sell because it means that the original investment thesis is no longer valid.

If a stock gets particularly overvalued the position is scaled back or sold depending on its severity. Heptagon uses eight different valuation metrics to keep tabs on intrinsic value.

Over the last three years the fund has delivered a compound annual growth rate of 17.5% a year compared with 12.5% for the MSCI Europe Growth index, according to Morningstar.

The top 10 holdings represented 55.5% of the fund at the end of July 2020. The largest holding is in Dutch semiconductor equipment maker ASML with a 7.6% weighting.

A lot has been written about the shortage of semiconductors in recent weeks as the world economy bounces back from the pandemic.

Beyond these shorter-term issues, Diebitsch believes the long term structural drivers of demand will remain a strong tail wind for ASML which has a leading market position.

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