Europe remains in favour despite lack lustre performance from a number of funds in the sector over ...
Europe remains in favour despite lack lustre performance from a number of funds in the sector over the past quarter to 1 July.
Both Rothschild Asset Management and Friends Ivory and Sime are overweight Europe, despite the unexciting short-term performance in a number of funds, relative to the FTSE Europe ex UK and MSCI Europe ex UK indices.
Robert Burdett, fund manager at Rothschild, said many of the favourite European funds suffered over the last quarter.
Most funds were overweight telecoms, which suffered because of concerns over the second generation mobile licences, while underweighting the better performing sectors like oils and financials.
Although many funds were poor performers, Investec European Fund, managed by Albert Morillo, returned 5.22% in sterling terms versus the sector average of 2.44% and the FT Europe Index, which was up 4.99%. Henderson European was up 4.55%, underperforming the index while Newton and Gartmore's European funds were up 1.97% and 2.1% respectively. Invesco was down 3.6% in sterling terms.
Burdett says: "We have been overweight Europe and are sticking with it.
"There have been good economic numbers coming out of Europe recently but at the moment markets in the world are moving as one, relative to what is happening in the US and concerns over inflation. The thing that Europe has in its favour is the move to the single currency which should soon start to have a positive impact on inflation."
Bambos Hambi, director of global equities at Friends Ivory & Sime, says Europe represents one of the key bets in his portfolio.
He says the restructuring story throughout Europe has much further to go both at a country and company level.
Hambi gives the example of Germany where the Government is moving to abolish capital gains tax on the unwinding of cross shareholdings, while corporate tax is coming right down.
Hambi says: "Company profits in Europe are looking good with expectations of double digit figures in both this year and next year, compared to the US and UK where profits look good for this year but may fall back next year."
On the downside however, Hambi says European valuations are expensive, probably the most expensive in the world on both a P/E basis and against fixed interest yields.
He says: "We are still not convinced that governments are shareholder friendly, Some are protectionists and slow to respond in becoming shareholder friendly."
Friends Ivory & Sime's key holdings are Hendersons European Trust, Invesco European Smaller Companies and Newton Continental European. Recently Hambi invested in the Aberdeen European Technology fund, to add a volatile technology fund to the range.
Derek Larcombe, who manages two investment trust funds of funds, is neutral in Europe, which accounts for around 12% of his Global Growth Fund and about 13% in the Global Income Fund. He says this position is based on a bottom up stock picking approach.
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