Stock market outlook 2021: Top 5 Europe fund managers share best picks - Business Insider

Whether it was the global financial crisis that brought down banks, and threatened entire governments with bankruptcy in 2008, or the eurozone sovereign debt crisis that started in 2010 and raged for another two years, or now with the coronavirus crisis, European investors have a lot of experience in handling chaotic and sometimes painfully volatile markets.Back in the spring, when the economic devastation from the pandemic became apparent, governments and central banks around the world created a multi-trillion dollar safety net that dwarfed any kind of aid seen in previous crises, which in turn gave companies the means to continue functioning and investors, the incentive to invest, rather than store any cash under their mattresses.The European market typically doesn't boast the kind of headline-grabbing returns that the US equity market does, much the same as European economies tend not to lead the rest of the world out of recession, the way the US economy has typically done.There is no equivalent in the region to the Teslas, the Zoom Communications or the DocuSigns, which all boast triple-digit percentage returns, thanks to this year's push into "work from home" and technology stocks. Below is the full list of managers in decreasing order of their year-to-date returns:Kristian Heugh is one of the most successful stock pickers in the world, managing several top-performing funds over the past couple of years.In April, he took over this year's top-performing European fund at Morgan Stanley alongside investing veteran Wendy Wang.Due to the short time span in which they have managed the fund, the managers did not feel it was right to do any "victory laps over a short-term track record in this fund," Heugh wrote in an email to Business Insider, asking to be measured over the long-term. This transformed into a hobby as he entered more competitions in addition to working a job at Clydesdale Bank.Now, stock selection is Bennett's core focus, as he searches for compelling stock-specific stories with sustainable long-term growth trends for the European Focus Fund.A compelling stock is one that meets five key components: good valuation, strong balance sheet, cash flow, a strong management (or a management team that can be changed), and catalysts, which enable the fund to be on the "right side of surprise."However, not every stock in the portfolio needs a catalyst. "I think sometimes you can be misled by feeling like you're there, therefore, you know what's going on, as opposed to saying I'm in this one little area of the world, the country, the region, so I have to look and see what's happening elsewhere and see what happens from a consumer lens," Kranson said.The Greater European Opportunities fund is looking for high-quality growth companies that will pass a multi-stage selection process involving screening, analyst analysis, and price valuation. This is something he wants to avoid.Ultimately, Kranson's goal is to find a diversified portfolio of drivers that lessen the risk of the portfolio overall.Some of the stocks that made it through this rigorous screening process — and crushed it this year — have been Cellnex Telecommunications and Adyen.Cellnex Telecommunications (CLNX) is the equivalent of American Tower (AMT), a wireless communications company consolidating the European telecommunications market that will benefit from the investment in 5G. "And while it's true that the end of the virus will be more important for some businesses than others, it's important to keep in mind that the end of the virus does not make a bad business good."But if a business had no growth, was structurally challenged, and was not a great investment before COVID, the end of COVID is not really going to change that.""With that said, I'm excited for 2021/2022 as Europe comes out of the worst of the pandemic, and there definitely are businesses that should thrive.""One thing I would say though was that the European market is not the European market of 10 years ago. The strict holding requirement means Zoellinger and his co-manager rely heavily on BlackRock's European equity team to help find the best stock picks.The research team, made up of 19 investment professionals and one data scientist, have deep knowledge of company business models across the European market, undertaking more than 1,500 company meetings a year.The bottom-up research is key to the fund's success, Zoellinger said, When selecting a stock, understanding company management is essential.Zoellinger looks for strong management teams who show appropriate financial discipline, companies with durable competitive positions, and catalysts for re-evaluation by the market.He is looking for opportunities across the market, avoiding stocks with inappropriate capital structures or unsustainable return on profits, Most of the time he is searching for long-term opportunities but at times he also selects some stocks that have the potential to re-rate over a shorter term period."For example, we have recently increased our exposure to European banks as we believe there is a strong potential for a re-rating of the industry over the next 12 months," Zoellinger said.