As stock markets develop, they naturally come to reflect the industry strengths of the national economy, often resulting in certain industries becoming over- or underrepresented, or not present at all. 
The Sarasin & Partners Compendium of Investment notes that given the natural structural biases of individual economies, there may be a number of business areas in which it may not be possible to invest in your own domestic economy.
“For example, an investor choosing to restrict the equity component of their portfolio to UK stocks alone would find it difficult, if not impossible, to gain exposure to investments in areas such as forestry, technology, motor manufacturing or paper production,” it said.
Data from MSCI shows that information technology accounts for just 5 per cent of the European market, compared with 24.1 per cent in the US.
This has led many commentators to argue that if you want to invest in technology stocks, you need to invest in the US. However, Gavin Launder, manager of the L&G European Trust, disputes this.
“The Americans love to tell us Europe doesn’t have any technology,” he said. “What they mean is, we haven’t got Facebook or Amazon, but we’ve got some great technology.
“ASML in Holland is the world leader in equipment for semi-conductor manufacturers to make their semi-conductors. It shies away from saying so, but it is basically a monopoly and in its newer technology it is a literal monopoly.”
Here he names three other stocks he is using to play the theme of European tech.
Basware
Basware is a Finnish company that is so obscure, only one analyst outside Finland follows it – “and he only does that because I asked him to”, said Launder, adding that he only found out about the company himself by accident.
“A Finnish analyst came in to talk about another stock,” he said, “and we quickly realised this wasn’t an exciting story, so we said ‘you must have something more interesting than this’ and he said, ‘there is this little software company, but I didn’t think you’d be interested in it’.
“So we started talking about Basware and I thought it was quite interesting and he told me the CEO was in London next week.”
Just as Launder owes his discovery of Basware to a slice of good fortune, the company itself seems to have stumbled upon its business plan.
Until recently, Basware’s main product was a legacy software that was growing at a pedestrian rate. However, it became fed up with customers paying late and all the paperwork involved with invoicing, so it developed an electronic invoicing system for its own business.
“It realised this was a better idea than its own business and so it started this invoicing platform,” Launder continued.
“You may have heard of a UK company called Tungsten, which had a closed loop where both ends of the transaction had to be on its platform.
“Basware deliberately went the other way, with open architecture. So if both ends of the transaction are on its platform, it will get the whole fee, and if one end is on and one isn’t, it gets a share of it. And it’s a small fee per invoice, 38 cents or something.”
Basware began targeting multinationals with large supply chains such as Heineken and Nestle. Once these firms saw the benefits of the system, they began to force it down through their supply chains, who also began to sign up as well.
The company has acquired a number of businesses around the world and now operates in more than 100 countries. Its transaction growth currently stands at about 30 to 40 per cent a year, while penetration of electronic invoices is at about 10 to 15 per cent – which Launder says is a key number.
“In the past when the market penetration has gone to 15 to 20 per cent, the growth goes really exponential because suddenly you have to be on it. You miss out on business if you’re not and we are beginning to get to that level,” he explained.
Launder adds that the volume of transactions being processed by Basware is so large that it has been able to build a database of which companies pay promptly and which ones don’t, and is now offering services built around this information to the supply chain.
“That part is now growing quite rapidly,” Launder added. “And it has got to that tipping point where this fast-growth stuff is bigger than the pedestrian old growth stuff. The growth rate of the group is now beginning to accelerate. And I think that is what will put it on people’s radars eventually and give it more international coverage.”
“It has been frustrating in that no one has really bought into it yet, but that’s really because we are not yet at that tipping point.”
Adyen
Adyen saw its share price almost double on the day it floated in June. However, Launder said that while the press described this as a fantastic IPO, he would describe it as “a disastrous IPO, because the seller must think we priced it wrong”, adding that most people didn’t get enough shares and won’t buy them after their price doubled.
However, he said it is still a “fantastic company”
Adyen is a Dutch payment-platform firm that provides a service similar to the one offered by Wirecard, Ingenico and Worldpay – indeed, the founders of Adyen sold their old business to Worldpay and worked for the company for a short period, which Launder said means that they know the system.
However, he said that what separates Adyen from the other providers is that it has set up one platform globally that is easy for vendors to access.
“If a vendor wants to go on to Worldpay’s platform, it has to sign up for the UK one, then separately it has to sign up for the US one, and so on and so forth all around the world,” he explained.
“And that’s the same with every other competitor. With Adyen, once you are on you are on. And you can start setting up your operations elsewhere very easily, which is why it suits bigger companies. And it has doubled in a short period of time.”
Adyen processed payment volumes of €108bn in 2017, up from €66bn in 2016. It recently announced deals with companies such as eBay, Tinder, giffgaff, and Groupe L’OCCITANE.
Home24
Launder likes to play the tech theme through companies that are disrupting existing markets.
One example of this is Home24, which sells a product not normally associated with cutting-edge technology – furniture. However, Launder said this is a market that looks wide-open to disruptive forces.
“When we look at the dynamics, the furniture market is €25 to €30bn a year or something and in any one market in Europe, the leader is almost always IKEA with 10 to 15 per cent share,” he explained.
“Then there is no one – there is absolutely no one there.
“These guys came out of Rocket Internet and started in Germany. They have thousands of items of furniture, but they don’t stock them – they hold other people’s things.
“Unlike Amazon Prime or whatever, you don’t want next-day or same-day delivery. When you are ordering furniture, you are probably moving house, you’ve got a few weeks to wait and that’s fine. They are content to send that through with negative working capital.”
Launder said the real benefit for Home24 of selling a vast quantity of other companies’ stock is that it allows it to see what is working and what isn’t. The company then sources it from the supplier, asking it to make something that looks very similar to a top-selling item, but with a few changes. This gives it a much higher margin.
Approximately 30 per cent of its sales are its own products, while 70 per cent are other companies’. However, 70 per cent of its profits come through its own lines.
Some people have dismissed this business model, pointing to the high cost of returns. However, Launder pointed out that only 10 per cent of furniture sold is returned, compared with about 40 per cent for ASOS. The company collects returned furniture for free, then takes it to one of its outlet centres dotted around Germany, where it will sell it at a discount.
“It dilutes margins slightly, but it is not a big number, which is good,” the manager added. “The only thing is delivery costs are reasonably high, so these are factored into the pricing because it is a two-man delivery in most cases.”
“But the company is growing really fast and it is expanding into neighbouring markets. So I think that one will be interesting and it will surprise people.”