James Anderson, manager of IC Top 100 Fund Scottish Mortgage Investment Trust (SMT), explains why he likes Spain-listed Inditex, owner of clothing retailer Zara. At the end of 2012 Inditex accounted for 4.2 per cent of Scottish Mortgage Investment Trust's assets, making it the sixth largest holding, up from 2.53 per cent at the end of March 2012 - the end of the trust's financial year.
"I think this is a really significant company for many reasons. Firstly, people wouldn't expect a Spanish retailer to make the impressive returns it has, but this is a company that has in some ways reinvented clothing retailing. The company doesn't do all its manufacturing in the cheapest places (as some other retailers) because these are not necessarily close to its stores so it couldn't get its products to them quickly enough.
Inditex is also a fantastic example of globalisation in action, with Zara stores now in 86 countries across the world, including Colombia, Saudi Arabia and Russia. The company knows people in large cities across the world want to buy the same things fast.
So why weren't people buying this company, which is doing very well, around a year ago? Because they didn't want to admit they have a lot of money in Spain. But this lack of popularity created an opportunity to buy shares in a great company at a great price.
Like-for-like clothing sales in Spain have been falling and also not doing very well in southern Europe. But despite this Inditex has risen around 35 per cent over the past 12 months and it is managing to do this with all these things going on in the background."
Inditex reported in a recent trading statement that its net sales rose 17 per cent over the first nine months of 2012, while net income increased 27 per cent from the same period a year earlier.
