de mol van otterloo alters make-up of european fund by focusing on company fundamentals
Adriaan de Mol Van Otterloo has altered 40% of the Schroder European fund since he took over from Mark Pignatelli in September last year.
While Pignatelli, who is now chief investment officer at Schroders, ran the fund on a top-down macroeconomic basis, de Mol Van Otterloo favours a more bottom-up fundamental driven approach and has made a number of changes to the portfolio's holdings as a result.
Whereas Pignatelli chose stocks on a more technical analysis basis, de Mol Van Otterloo is more interested in the management of a company, its valuation and the business in which it operates, rather than looking at technical charts.
The £156.8m fund now holds 75 stocks, which he said is slightly higher than when he took over and is a reflection of the fact he has upped its small and mid-cap weighting from 5% to 20%.
He said: 'I felt uncomfortable holding so many large-cap holdings, so on a stock selective basis, I upped the small and mid-cap weighting. As a result, the fund holds slightly more stocks as I do not take such large bets in this area.'
Following the changes de Mol Van Otterloo has made, the fund's performance has picked up and it has moved from being ranked 56 out 106 in the Europe ex-UK sector over the year to 20 January to being ranked 15 out of 110 over three months to the same date. Over the three months to 20 January, on a bid-to-bid basis, the fund has returned 4.1% compared to the sector average of 2.5%.
With the market consensus for 2003 being single-digit returns, de Mol Van Otterloo thinks greater returns can be made by taking advantage of the volatility of the market.
He said: 'I become interested in stocks when the markets are at their lows and everyone is running for the hills because you can pick up stocks at very decent prices at this point. Investors should think with their brains rather than their hearts and your brain says buy the market when valuations become cheaper and sell the market when things become more expensive.'
For 2003, de Mol Van Otterloo expects the European economy to improve slightly and believes interest rates will be cut, which should have a positive impact on equity markets.
The fact many company management teams in certain sectors have changed is another positive, he said, as these new managements are focusing solely on debt reduction and improvement of operations and are thereby reducing costs.
However, there are risks to the region as well, such as the uncertainty over Iraq and the consensus that earnings growth remains much too high.
In terms of sectors, de Mol Van Otterloo said, the portfolio is still very much overweight oil. 'This is not because I think there is going to be a war and therefore oil prices will spark up,' he added. 'I just think most of these companies do not look expensive on traditional multiples.'
He is also overweight European telecoms as he believes the sector is focusing more on de-leveraging balance sheets.
He said several companies, especially KPN and Telefonica, have significantly improved their balance sheets, with France Telecom and Deutsche Telekom likely to do the same this year.
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