Portfolio has a more focused feel since shant took over as head of european equities in March
Newton Continental European is being run with a more focused portfolio since Raj Shant took the helm.
Shant, who joined the group as head of European equities in late March, has since finished his review of the portfolio and reduced the fund's number of holdings to 51.
The fund's sectoral positioning has also been altered to reduce exposure to technology, telecoms and food retailers and increase holdings in banks.
Shant stressed the process was one of tweaking rather than any wholesale changes. His underweighting of technology, both hardware and software, reflects his view that the sector enjoyed a strong bounce in February and March this year, while food retailers have performed well but have little further upside due to their current high valuations, he added.
Shant has only sold six stocks and made a couple of purchases since taking over the fund but he is keen to keep the portfolio within the 45-55 stock range.
He noted: 'I've always believed in running a relatively concentrated portfolio and 45-55 stocks is a reasonable range. With the strong team here it is a comfortable number to make sure we keep in touch with our companies.'
Shant has also identified a number of themes which he believes can boost the performance of the fund over the coming years. Besides his interest in the more widespread investment themes of demographics and the convergence of certain key Eastern European markets with their Western European counterparts, Shant is also bullish about the continent's inflation and interest rate cycle. He believes Europe is now coming out of a 20 year cycle of falling inflation and interest rates that started at the beginning of the 1980s and ran to the end of the last century, polarising valuations in the marketplace.
Shant said when inflation and interest rates were high in the 1970s and early 1980s, the market was less focused on small differences between the growth rates of stocks. As inflation and interest rates fell, valuations became increasingly polarised as those with slightly higher growth rates were re-rated upwards, while their slower growing counterparts where derated relative to the market.
The larger companies were the prime beneficiaries of this polarisation, Shant said, leaving a relatively untapped layer of blue chips beneath them that now offer attractive valuations.
He added: 'If you say that trend is at an end, some of the larger stocks will struggle over the next year or so but beneath that there are several tiers of liquid blue chips able to generate strong returns.'
As such, the fund will remain blue-chip biased, enabling the fund to deliver repeatable and scaleable returns as the fund size grows.
Shant said although he expects the European stock markets to post fairly flat returns over the coming quarters, he believes there are plenty of companies with strong cash flows and balance sheets, paying high dividends and trading on low multiples.
In the current volatile environment, Shant added that unlike the technology boom where a few stocks drove the market up, the coming months will see markets flounder but a lot of companies perform well.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
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Will report to Mark Till