Attractive valuations in telecoms and healthcare are presenting absolute value prospects in European equities despite a bleak economic outlook, according to Fidelity.
Anas Chakra, portfolio manager of the Fidelity FAST Europe fund, is overweight in the telecom service sector, as he believes there is genuine value in an overly-pessimistic market.
Investors are concerned companies in the sector face more EU regulations and fear consumers could cut back their spending during a recession, he says.
“However telecom spending is actually a small and fairly inelastic part of total spending and surveys show that consumers are more likely to cut back on a range of other goods and services first.”
Chakra believes the healthcare sector is also interesting, as it has derated over recent years, due to increased generic competition and patent expires on ‘blockbuster’ drugs.
“There are some very good companies at attractive valuations that offer high visibility of earnings which is attractive in the current environment.”
He says Roche is a favourite holding in the long portfolio, as it offers reliable earnings growth within a slowing economic environment.
UK and Ireland’s ban on shorting UK financial stocks has had minimal impact on the fund, as it had no exposure to these names when the bans were introduced.
“While this has proved a successful source of short ideas for the fund in the past, the cost of borrowing financial stocks had increased markedly and I am now finding attractive more cost effective, non-consensus short sales in other sectors and geographies," says Chakra.
"In terms of shorting opportunities I am finding some attractive candidates in real estate, where I still think stocks are overvalued.”IFAonline
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From 6 April 2019