£385m HSBC European Growth fund has moved back to the top of the europe ex-uk sector
Manager of the HSBC European Growth fund Jeff Currington has toned down the aggressive portfolio he took over in May, taking profits in high-beta areas such as insurance and technology.
Over three months to 28 July, the £385m fund has moved to the top of the Europe ex-UK sector, after a difficult period under interim manager Andrew Koch following Chris Rice's departure to Cazenove last September.
Currington said this recent outperformance is not entirely down to him, however, as the aggressive portfolio he inherited from Koch was well positioned to benefit from the recovering market in the second quarter.
'As there were no major sectoral or thematic calls on the fund when I took over, the one major decision I had to make was whether the aggressive stance was justified in light of market conditions,' he said.
In Currington's view, the tone of the market has changed and the excessive pessimism that forced valuations down earlier this year looks to be over. The recent uplift in the market as a result of the turnaround in sentiment means such an aggressive portfolio is no longer appropriate.
While valuations across Europe are still attractive, with P/E ratios in the low teens, valuations in these sectors already reflect the improved conditions of the past few months more than the rest of the market, he said.
Since Currington took over the fund, HSBC has taken in around £45m and is beginning to attract intermediary interest once again.
According to Ben Yearsley, investment manager of Hargreaves Lansdown, although Currington is new to the business cycle style at HSBC, he has proved himself capable of running low-risk funds that can outperform in the long term.
Yearsley said the fund could form the core of a Europe portfolio for the foreseeable future.
Although Currington has reduced the beta on the portfolio, it is still positioned to outperform in a rising market in line with HSBC's house view of a muted economic recovery in Europe and subsequent outperformance among cyclical stocks.
Current sector overweights on the portfolio include investment banks such as Credit Suisse and UBS, both of which have been cost-cutting and are geared into improving markets, and cyclical material companies such as Swiss chemical stock Clariant.
In terms of the background in Europe, although the euro's strength against the dollar has hindered European exports, Currington believes this is reflected in prices and a reasonable recovery in the US should support the dollar and stabilise exchange rates in future.
HSBC sees the European Growth fund as a core product, he noted, and the long-term aim of the portfolio is to achieve consistent percentile rankings in the 20s and 30s, rather than the all-or-nothing approach of more aggressive offerings.
Part of investment committee restructure
Follows Asset Management Market Study
To open in second half of 2019
Regular reminders and updates
9 December 2019 deadline