Sector rotation has emerged as the dominant theme among European fund managers in the Standard & Poo...
Sector rotation has emerged as the dominant theme among European fund managers in the Standard & Poor's Fund Research universe.
Its latest report, which confirmed Gartmore Select Opportunities and INVESCO GT European Growth unit trusts in their frAAA rating, found those who picked up on the telecom, media and tech (TMT) sector resurgence in the last quarter of 1999 had produced the highest returns.
James Tew, European head of research at S&P, said: "The abruptness and speed of sector rotation in European markets last year resulted in considerable disparity in fund performance. However, overall performance in the sector held up well, with the average fund in both the mainstream and smaller company sectors comfortably outpacing accepted benchmark indices."
Overall the European peer groups outperformed their benchmark indices substantially. During 1999 the Europe mainstream ex-UK sector produced an average rise of 26.5% compared to a rise of 19.9% of the FTSE World Europe ex UK index.
Within this universe the Baring, Gartmore, Mercury and Perpetual European Growth unit trusts all maintained frAA ratings. The Singer & Friedlander Continental unit trust was downgraded to frA due to underperformance over the last 12 months and what S&P sees as stretched resource on Singers Europe desk.
The mainstream pan European sector returned 23.8% against 19.9% for the FTSE World Europe. The only unit trust to receive a rating in this category was an frAA for M&G European Dividend. This was a reduction from frAA. S&P said while the fund continued to meet its investment objectives these dictated a largely cyclical and contrarian style which had underperformed.
The European small cap universe returned 56% against 19.7% for the HSBC Smaller Europe ex UK. The top ranked fund was the frAAA INVESCO GT European Smaller Companies, while M&G European Smallers had an frAA rating.
In its overview of the Europe ex-UK, Pan-European and Europe smaller companies fund sectors, S&P found that despite some extreme outperformances by individual funds, the difference between the top and bottom quartile performances had narrowed to about 12% for the two European mainstream sectors and 30% for the smaller companies universe.
Based on the healthy sector averages, S&P said the majority of fund managers had coped well with a period of extreme volatility. However, that the winners were those that took the most aggressive positions in TMT in the last quarter of 1999.
It reported that the extremes of the market forced many fund managers to make adjustments to their normal management styles. Tracking errors widened against benchmark indices as many moved to a barbell approach concentrating on deep cyclicals at one end and high tech growth at the other. Some portfolios saw increased numbers of holdings as managers sought to diversify risk among smaller companies. However more portfolios contracted as managers took confident stands.
Debbie Boys, lead analyst for European funds at S&P, said: "Last year was one of exceptional sector volatility in European markets, which made steady outperformance by any fund particularly difficult to achieve."
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