Pease attributes New Star European Growth's outperformance of the sector to a combination of bottom-...
Pease attributes New Star European Growth's outperformance of the sector to a combination of bottom-up selection and favouring of mid caps.
The fund's size enables him to invest the majority of the portfolio in mid-cap stocks. He said this became increasingly difficult towards the end of his tenure at Jupiter as the fund's assets grew rapidly at the height of the bull market.
'When the fund got to £1.25bn, it became difficult to get the kind of exposure to mid-caps I wanted, which is why we launched European Special Situations,' Pease said. 'We started off with two thirds in mid-caps and one third in large-caps but this reversed as the fund grew, so Alex inherited a more large cap-oriented portfolio.'
The bear market forced fund managers to stick to markets and company management they know best, he added. Because of this, the concentration of holdings in his favoured markets has remained high since launch, while portfolio turnover has stayed low.
'We are sticking to tried and trusted methods,' Pease said. 'Alex had a strong background in French equities and sticks to what he knows best. I, on the other hand, am familiar with the Irish and Dutch markets and have good contacts in Italy, so tend to focus on them. I think there is good macro justification for these weightings too.'
His favoured market, Ireland, comprises slightly over 25% of the fund's holdings at present, with just under 20% each invested in Italy and the Netherlands.
He said although Ireland has suffered along with the rest of Europe, it is still growing its GDP at above average rates and remains attractive to foreign industrial investors due to its low corporation tax and flexible labour laws.
'The real driving force is that we are always able to find companies inexpensive to their historical growth rates where we feel the quality of management and outlook moving forward are better than average,' he noted.
Pease added that both Irish and Dutch companies inevitably expand beyond their home countries if they wish to grow, given the small size of their domestic markets, and investors gain reassurance from the fact these brands are global.
He admitted part of the fund's relative outperformance is a by-product of avoiding the large-cap disasters and sticking to mid caps he knows well. As such, he tries to visit all 70 of his holdings every year and is confident the portfolio is well positioned for the medium term, although he points out any strong blue-chip rally will leave the fund behind in the short term.
FUND MANAGER: Richard Pease
Managed Jupiter European between Jan 1990 and Dec 2000.
Joined New Star in June 2001 as head of European equities.
Launched European Growth in July of the same year.
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