GROUP BELIEVES P/E RATIOS MAY HAVE TO FALL BY 50% BEFORE BEAR market ends in European market
Investment boutique Odey Asset Management is to launch an Oeic umbrella and introduce a pan-European sub-fund to UK retail investors.
The CF Odey European unit trust will also be switched into the new Oeic structure, to be launched in May. The new pan-European fund will be branded the Odey Continental Europe fund and will be an onshore version of its existing Vitruvius Fund, currently housed in a Luxembourg-based Sicav.
Hugh Hendry, manager of Odey European and a director at the group, said the group will also introduce a new charging structure for its fund range upon the conversion to an Oeic structure. The new charging structure is expected to be based on the model adopted by the Gartmore UK Focus Fund, which levies a performance related annual management fee on an annual rolling basis.
Gartmore charges an annual fee of 2% if the fund is in the top-quartile each month in one-year. For each month it is not, a rebate of one twelfth of 0.75% is given to unitholders.
The exact nature of the charges, plus the initial charges and minimum investment levels, have yet to be confirmed, however.
The Vitruvius Fund is invested on a pan-European basis split 70%-30% between the UK and Europe, while Odey European is a Europe ex-UK vehicle. The oeicing of the CF Odey European fund will enable the group to drop the CF prefix from the fund's monicker to avoid any branding confusion.
Both funds typically hold 100 stocks and the funds average between 200%-400% turnover per annum. Hendry claimed this level of turnover costs 1.8% per year but boosts performance by 6%, on average.
The funds are run on a total return basis as stockpicking funds, overlayed with Hendry's macro view that both the UK and European markets still have some distance to fall, while inflation is set to rise.
Hendry said: 'Few investors have made money investing in European shares for the last three years. Bear markets tend to last for a great length of time and really only come to an end when blue chips are on 10 times earnings and yield 5%.
'That is not Europe specific, but relates to all markets, which are all closely correlated. European stock markets currently trade on 20 times earnings, so we will get a multiples compression of 50%.'
While Hendry is bearish on the overall direction of both UK and European stock markets, he believes the actions of central banks in attempting to stave off a Japan-like deflationary scenario will succeed and actually drive up inflation and subsequently prices.
He noted: 'I am buying stocks which benefit from higher prices. My fund is up 12% year to date because I am buying inflation.'
To this end Odey European is currently 20% invested in commercial property, 25% in construction and housebuilding stocks, 7.5% in gold, 27.5% in value stocks and 20% in a selection of out of favour stocks, such as paper and pulp and metal and oil refinery stocks.
Of the latter, Hendry said these are stocks that have been unable to raise their prices for the last 10 years but are set to benefit from rising inflation.
This strategy led to Odey European being the top performing European fund in the 12 months to 22 March, up 20.52%, compared to a sector average fall of 3.6%, bid to bid, despite having a beta score of 0.69 versus the sector average of one.
Increasing awareness of the Odey European fund's impressive track record has led to large inflows over recent months, swelling its assets to £120m.
Hendry said: 'The unit trust has doubled in size over the last six months. I wish it would double again because there are so many exciting opportunities in the market.'
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