Europe’s defense stocks have boomed this year , with some major players tripling in value — but one fund manager spotted the potential in sector darling Rheinmetall early, and won big as a result. Christopher Hart manages Boston Partners’ $5.8 billion Global Premium Equities fund, which, net of fees, gained 22% from the beginning of this year to the end of July. His team’s value investing strategy means ignoring market noise and focusing on the so-called “three circle rule” of only picking stocks that have an attractive valuation, strong business fundamentals, and positive business momentum. If at any point a stock held in the fund no longer meets all three criteria — for example, because a company’s valuation appreciates too much or its fundamentals weaken — Hart said his team will sell. “We’ve had tremendous asset growth over the last 20-odd years, really by sticking to our value style,” Hart told CNBC. The fund’s performance in the first seven months of the year — the most recent Boston Partners has made available on its performance — has comfortably outperformed that of the MSCI World Index, which its management team uses as a comparative benchmark index. The MSCI World has returned 15.2%% so far in 2025. However, Hart said the performance of the MSCI index has no influence on his strategy, which often means taking a somewhat “contrarian” position. “There’s a reason why these businesses are mispriced. We look at it as the glass is half-full versus the glass is half-empty,” he said. “It’s just a disciplined approach, day in, day out, every stock that we that we pick and put in the portfolio exhibits those three characteristics.” Rheinmetall bet One example of that approach translating to a win for the fund is its return on Rheinmetall stock. Earlier this year, the Boston Partners Global Premium Equities Fund cashed out of its stake in the German arms manufacturer, even as investor demand for the company remains on an upward trajectory. RHM-DE YTD line Rheinmetall share price year to date Since the beginning of 2025, Rheinmetall shares have surged 209% amid a broad European push to hike defense spending . Boston Partners fund managers snapped up shares of Rheinmetall back in 2019, however, as they felt it met their three-circle criteria. During the six-year holding period, Rheinmetall became one of the fund’s top 10 stocks, accounting for more than 2% of the portfolio. The fund managers trimmed their stake multiple times before fully cashing out this year as Rheinmetall’s valuation rose. By the time they completely sold out of their position in Rheinmetall, the stock had risen by 2,056%, Boston Partners told CNBC. Hart said that, prior to the war in Ukraine, many of Europe’s defense stocks did not meet the “three-circle criteria,” with Rheinmetall being the exception. “Rheinmetall was the largest holding in the fund, it’s the best contributing stock to the fund I think in the history of the fund itself,” he told CNBC. “When we bought it, at the time it was two businesses, an autos components business and the defense business, and we thought it offered great value. We liked their fundamentals. And then along comes Ukraine and off to the races.” Sticking to his strategy meant Hart’s team “kept selling into strength,” and winding down their stake even as the share price continued to rise. “We have sell discipline, so that when a company or stock gets to a valuation level that we think is above its intrinsic value, we will sell it. We will move on, because then that stock is no longer a value stock,” he said. “When I look at Rheinmetall’s 27/28 earnings, [the forecast is] probably fair, it’s probably the number they’re going to hit, but the multiple that you’re paying for that is outside the realm of being a value stock, so we had to sell.” “[When] it becomes a growth stock — not my style,” Hart added. Value investing Value investing — searching for intrinsically undervalued stocks — is not for everyone. Although credited as being the driving force behind billionaire investor Warren Buffett’s success, some investors believe it puts a portfolio at risk of missing out on the huge returns offered by growth stocks . Boston Partners’ Global Premium Equities fund drastically underperformed the S & P 500 last year. While it returned 10.7% before fees, the S & P 500 surged 23.3% over the same stretch. So far this year, the S & P 500 is up by over 12%. “Value investing as an industry is dead,” Greenlight Capital founder David Einhorn told CNBC in 2023 . “The money has moved from value investors to index funds and it’s not coming back.” Boston Partners’ Hart rebuffed such claims during his interview with CNBC. “There have been multiple periods where [it appears that] value’s dead — and it turns out, value is not dead,” he said. — CNBC’s Bob Pisani contributed to this article.
