By Robert Stock Old Mutual Asset Managers (Omam) has restructured its two European retail equity uni...
By Robert Stock
Old Mutual Asset Managers (Omam) has restructured its two European retail equity unit trusts following the arrival of fund manager Adrian Farthing.
Farthing, previously at Hill Samuel where he ran the TU European Growth unit trust, has shifted the European and European Growth funds to a broad-based, bottom-up investment style. This marks a strong change of direction from the quantitative-based approach used previously.
The European Fund is to be positioned as the core offering to retail clients to rival top end funds such as Gartmore European Select Opportunities and Invesco European Growth, while the European Growth Fund will be repositioned as a blue chip vehicle.
The two portfolios are now being managed on a non-thematic basis by Farthing and his assistant, Stuart Taylor. Omam is looking to hire another fund manage to bolster the team early this year.
Although the two portfolios are both relatively small at £52.3m for European Growth and £112.1m for European, Farthing is not planning to run trading positions but rather create a durable investment process.
The restructured funds are quite similar as Farthing is nervous about small cap stocks which are generally less capable of dealing with a slowing economic climate than larger cap stocks, however he expects the portfolios to diverge going forward.
The two are overweight in banks, particularly the more interest rate sensitive banks, but underweight insurance companies and real estate. They are also overweight in old economy industrials.
Farthing has moved them to a neutral position in oils heading towards underweight as he expects the oil price to come back. He is underweight pharmaceuticals, which he considers to be expensive considering their growth rates, and underweight consumer stocks.
Farthing believes expectations of the advertising cycle are overhyped and is underweight media. He is neutral on telecoms and utilities.
Farthing said: "The key driver to equity markets' performance is earnings growth which gives you the direction in which the market is going to go and the relative performance of the sectors. Within the sectors you then have to see where the different P/E valuations are and the opportunities created. It is this diversity that gives you the opportunity to pick out different stocks and stories that are either attractive or unattractive.
"The aim is to seek a portfolio with a higher earnings growth than the market but with a lower P/E so whatever you are paying for in terms of growth is less than the market."
Farthing believes now is a good time to invest. He said: "Equities as a whole are starting to look very cheap relative to bonds. If you look at the period of the past 10 years equities have not been this cheap relative to bonds other than during the 1998 emerging markets crisis."
Omam sees varying levels of value in European equities.
Farthing said: "The prices that are being paid for growth in defensive areas are enormous, that is pharmaceuticals, utilities and food producers."
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