banks about to sell off industrial holdings central to marsden's style
Rod Marsden, of JO Hambro, has been one of the European sector's best kept secrets. He previously ran some £200m of assets for the Japanese company Sanwa but, despite his impressive track record, was reasonably unknown.
Mark Dampier, independent financial adviser at Hargreaves Lansdown, says Marsden has proven ability equal to that of Fidelity's Anthony Bolton, but his impressive track record had never really been promoted to the retail market by Sanwa so he had gone largely unnoticed.
Marsden left Sanwa late last year to join JO Hambro, where he launched the JO Hambro European Fund, a Dublin-domiciled Oeic.
In the five years up to his departure, Sanwa European Growth was ranked fifth of 77 trusts, offer to bid in the Europe Excluding UK sector, returning 102.7%, compared to the sector average of 77% offer to bid over the same period. In addition, it was one of the least volatile funds in the sector.
The JO Hambro European fund now holds just under £16m in assets.
Since its launch in early November, JO Hambro European is now ranked seventh of 95 trusts in the Equity Europe, ex UK, offshore sector. According to figures provided by Standard & Poor's, the fund returned 7.3%, compared to the sector average of 1.74%.
How do you construct the portfolio?
I am a top-down investor. I look at industries first and determine where I am most positive and negative. Then I go about picking the best stocks within those sectors.
How would you describe your style when choosing stocks?
At Sanwa, my aim was to produce good performance with low volatility. I managed to do that over three, five and seven-year periods. I am attempting to do the same at JO Hambro.
The only way to achieve low volatility and strong returns is by concentrating on neither growth nor value, but to try to use the best of both worlds. I would therefore describe myself as pragmatic.
I control the volatility through a number of simple constraints. First, I will put no more than 3.5% of the fund in any single stock.
Second, 65% of the fund is in medium and large-size companies with a market cap of more than one billion euros. Third, I won't overweight any sector, by more than 75%.
My index is the FT Europe ex UK index, so for instance if the oil sector was 10% of the index, I wouldn't go over 17.5%. The constraints allow me flexibility but the idea is to stop me from getting carried away with what I may believe is a winning streak at the time.
How many stocks are there in the portfolio?
I run between 50 and 70 stocks. Currently I am at the top end of that scale because, although I believe we are in a period of economic recovery, the risk profile of the market is still very high, so I prefer to have a greater number.
Are there any stock constraints?
There are no formal stock constraints. I don't believe there is any need to hold a stock per se, just because it is a very large company. However, I do like to keep some sector exposure, and I'm fully aware that I can get things wrong.
There is nothing worse, for example, than having no exposure to telecoms because you think the prospects are lousy, and then coming into work to find that two major telecom stocks have merged and that share prices have shot up across the sector.
That is the sort of risk I don't like to take. In terms of whether I should hold Nokia, I would say no, I could easily hold Ericsson as a proxy. And if I don't like the two majors I will hold smaller telecom companies in their place. Currently, I do have some exposure to each of the largest 10 stocks in Europe.
What sectors are you focusing on now?
I am overweight in industrial stocks, consumer cyclicals and resources.
All these sectors are geared toward economic recovery, which I believe is happening slowly now, and will accelerate during the second half of this year and in 2003. I think there are some decent valuations within those sectors. This is particularly so in terms of chemicals, and paper and packaging.
The oil stocks also look like good value. I believe earnings momentum will stay strong within the sector as the oil price is going to stay quite high.
What themes are you following?
I expect there will be some restructuring in the banking sector so I am heavily exposed to areas where I think opportunities may arise. The French banks are particularly interesting. It is quite clear that the merger between BNP and Paribas in the late 1990s has gone well and that we will see further mergers in the sector.
It is possible that something might happen in the next six months and that will be to the benefit of French banks, and I am quite heavily invested there.
The two names which always come up are Dexia and Credit Lyonnais. Both companies have signalled that they would like to merge with a large group.
In Germany, I like Deutsche Bank, as it is looking to sell off some of its industrial holdings and I'm quite bullish about the impact this will have on the share price. I also hold KBC, UBS and BNP. Although bullish on these particular banks, I am in line with the index and hold 16% of the fund in this sector. Usually I am not so positive on banks.
How big a part of your portfolio is technology, media and telecomm- unications?
I'm still a bit reticent about TMT, but I have been buying telecoms and technology stocks recently. This is not because I am especially bullish about these sectors, but because I am increasingly worried about being underweight there.
That is based on the view that people now appear to be looking for good rather than bad news. It seems to me that there is very much a change of emphasis going on, which makes me feel increasingly nervous about having too much of a bearish position there.
For example I hold Deutsche Telekom and France Telecom. I do not have major positions, but I believe we are getting to a period where there might be actions taken to improve the profitability of these companies and this could be very positive for the share prices.
Do you consider countries when constructing your fund?
I don't specifically look at geography, but I always make sure I do have some exposure to the larger companies.
Currently, I hold an overweight position in Norway, based on the belief that oil revenues are helping the Norwegian economy.
I am slightly underweight in Spain, based on the view that there has been a lot of growth in South America that has benefited Spanish companies, particularly Spanish banks. However, going forward, the benefits from South America appear less certain.
I don't invest in the UK, and tend to avoid Eastern Europe.
Do you have any research support in managing this fund?
There are some very experienced people here at JO Hambro running other European funds, so there are plenty of capable colleagues to bounce ideas against. JO Hambro has around £700m of assets under management in European equities, including a £300m hedge fund, so there are ample resources for this purpose.
Would it become a problem if your fund was to grow substantially?
Because the fund is dominated by blue chip and mid-cap ideas, liquidity isn't really a problem. If the fund did grow to £200-£300m, I don't see it being a problem.
I might have to revise my thoughts, however, if the fund grows to more than a £1bn in years to come.
Does having a performance fee (the fund attracts a 1.25%pa management fee plus 15% is charged on excess if the fund outperforms its benchmark by 1%), make you try harder in the bid for outperformance?
It is nice to have performance incentives but if you start to think about it too much it is possible that you could do more damage than good. You can try too hard in this business and can probably ruin performance by doing so. Management fees keep you interested as a fund manager, but at the end of the day I just seek to make sensible investments and produce good performance. The rest will follow.
What are two examples of your most overweight stocks?
I like Dexia, the French bank, because its banking ratios are good and it is a solid bank, which I expect will eventually benefit from merging with another company.
Another is Wandadoo, the internet service provider. The prospects for the industry are starting to look brighter, but the company also has the backing of being involved in the Yellow Pages, which provides the steady cashflow in which to expand its ISP business.
This is a good example of trying to hedge my bets, by actually being involved in a market that is recovering, but also where there are some defensive characteristics.
What is your main negative stock bet?
Nokia represents around 3% of the index, but I have just under 1% of my fund in that stock.
Nokia is not a bad company, in fact it is very well run, but at the moment the industry fundamentals do not justify holding a large position.
FUND MANAGER: Rod Marsden
Rod Marsden has had more than 20 years' experience in equities of which 15 has been specialising in Europe.
Before joining JO Hambro late in 2001, he spent eight years at Sanwa, where he built up an impressive performance track record.
Other periods in his career were spent at CIS and Imperial Life of Canada, after studying economics at Brunel University.
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