The past few months have been a torrid time for the European active fund manager. They have had to t...
The past few months have been a torrid time for the European active fund manager. They have had to turn over funds at high rates to keep up with constantly changing sector rotations, or had to maintain a balanced portfolio, hoping irrational markets re-enter a period of stability. But when?
In order for the European markets to settle, much pins on what happens globally.
When the American debacle has reached its conclusion, the world can come to terms with the presidential team and markets will be in a more stable sense of mind.
With these unknowns, nervousness is spilling over and having repercussions across the world.
Performance in Europe has been about predicting trends and riding with them. Volatility brings opportunities for investment but cash flows often dry up and timing is difficult to execute effectively. Broad shoulders, experience and the ability to stay calm should help through these times.
Comfort can be found in European companies delivering in line or better-than-expected earnings. Disappointment has come mainly from new age technology stocks, with cash drying up and whose ability to come to the markets to ask for more is stifled.
What was gold dust has become leprosy to the fund manager, disabling and stifling performance. Large cap hardware stocks with longer histories and good management are fairing better but have still harnessed performance.
Healthcare companies, pharmaceuticals and food producers have been safe-havens, as have low value financials. High growth financials have been punished for being expensive despite delivering promised earnings. For around six months, telecoms have been an easy short-term prospect for hedge fund managers and the appetite for short-term gains seems to be insatiable.
So, when will rationality return to Europe? Soon, but it would be irresponsible to gamble on. 'Brownie points' are never awarded to those first to be right. It involves too much risk, something we are paid to manage sensibly. When we find out whether America is in for a hard or a soft landing, then markets should experience either a final clean-out and find direction, or steadily re-emerge with new trends.
The key to effective stock selection seems to be which companies can benefit in the short to medium term from the new technologies; reducing costs, reaching new markets, or participating in corporate activity, justified by greater synergies being achieved because of new technologies.
Rationality will return to the markets, fortunately it has never left many of Europe's effectively managed companies.
Jennifer Guest-Cagirtekin is European fund manager at Gerrard, previously Capel Cure Sharp & Greig Middleton
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