European Prime fund will initially focus on stocks offering long-term value
The forthcoming RSA European Prime fund will look to take up a defensive stance when it launches on 1 October.
Davina Curling, who is to run the concentrated equity portfolio, aims to identify stocks with long-term value. She sees a lack of clear direction in the economy and stock market at present, which is leading her towards this more cautious position.
She said: 'When we begin to see a rally around the fourth quarter then we will edge in some more aggressive cyclical stocks.
'There are no restrictions in the fund in terms of geographical, sectoral or index weightings. By nature I tend to err on the side of caution. It is unlikely that I will take a 50% weighting in a certain sector or country unless it already makes up somewhere in the region of 30% of the index.'
Contrary to a number of fund managers, Curling believes in taking a country approach to stock selection as well as a sectoral stance.
She said: 'Local news is very important to the management and success of companies. We will take a top-down view as well as bottom-up and look for anomalies and sectoral themes.'
According to Curling, there is little visible economic or stock market direction in Europe or the UK at present. She said: 'We are looking for interest rate cuts and downgrades in areas such as IT hardware. Once there is an upturn in the US economy then it will take six months to see a recovery in Europe.'
One of the long-term stocks Curling will hold is Vestas, the wind power company, to take advantage of its major position in the renewable energy market. She will also hold River Deep, an educational software company, and aims to have two pharmaceutical companies in the top 10 holdings.
She said: 'For three years, the European stock markets have disappointed and the indices have traded within a tight range. This means the impact of strongly performing companies has been diluted by the badly performing ones.
'This disparity between performance has been seen across industries as well as sectors. For example, NestlÃ© is trading at an all time high, whereas Unilever is yet to recover to its 1998 levels.'
She added that equities will continue to produce long-term returns for shareholders but it is unlikely the strong bull markets of the 1990s can be repeated.
She said: 'Much of the good news about the low inflation, low interest rate paradigm has already been discounted.'
RSA Investments believes now is an opportune time to launch an aggressive European portfolio. Curling said: 'Having suffered years of disappointment we are probably nearing a bottom. The economic recovery is likely to be slow and although many of the long-term structural changes are positive, they are still long term.'
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