new star european growth Our top pick in the European fund sector is the New Star European Growth f...
new star european growth
Our top pick in the European fund sector is the New Star European Growth fund, managed by Richard Pease. The performance of this fund speaks for itself; with the fund having delivered top-decile performance not only since it was launched in July 2001 but also over one, three and five years.
Since launch, the fund has returned 91.6% and has outperformed the IMA Europe excluding UK sector by 45.4%. In recognition of the fund's strong and consistent performance it is currently rated 'AAA' by Standard & Poor's, Citywire and Forsyth-OBSR.
It is not merely the absolute numbers that have made us choose this fund but equally important has been the manager's consistent management style. Pease is widely regarded as one of the leading fund managers in the UK and is rated the UK's number three European ex UK fund manager, according to Citywire, for his five-year performance record (August 2006).
Prior to joining New Star he was head of European equities at Jupiter Asset Management and managed the top-performing Jupiter European fund between January 1990 and December 2000. His track record has not gone unnoticed by investors, with the European Growth fund having recently surpassed £1bn in assets under management.
Pease uses a contrarian approach to managing money. He is index agnostic and if you are looking for a manager who will track the bigger markets in Europe you will be disappointed. His overriding investment style revolves around value investing, which as most investors are aware is the most consistent way to manage money over the long term.
He seeks out those companies that appear cheap, using a screening process, which looks at P/E ratios, price to cashflow and price to sales, but New Star are quick to point out this is not a 'black box' investment process and is merely a starting point. Stockbrokers also play a part in generating good ideas in line with the fund's objectives, thanks to strong relationships fostered over his 22 years' experience in the market.
In determining which companies to buy, highly cash-generative ones are something he keenly seeks because this gives them ample capital to expand their business and allows them to remain sustainable companies. The quality of management is another key consideration and in that vein he favours entrepreneurial managers that hold a significant number of the company's shares themselves. This best aligns managers' interest with that of their underlying shareholders.
He also has a bias towards companies that operate in niche markets or that can demonstrate a quality of product or service that is difficult to replicate. As for dividends, they are the cherry on the cake, but not a deciding factor in stock selection.
In terms of his current outlook, Pease notes economic conditions appear reasonably encouraging and what is more the fund has relatively little indirect exposure to the US, where most economic concerns have been centred. He is relatively confident that most of the companies held by the fund should be relatively unaffected by the recent eurozone interest rate rise, because credit is still relatively cheap and corporate activity is likely to remain a defining feature of the European equity markets in 2007.
Shareholder activism is also becoming increasingly apparent, with companies and private equity groups such as Macquarie forcing a more Anglo-Saxon model onto European companies. This should encourage management in Europe to become more competitive and unlock value for shareholders. There is also a growing body of evidence that would support the view productivity is actually accelerating in Europe and this may not be purely cyclical but in fact be structural and as such could support European equities for a couple of years to come.
He is cognisant of the macro environment but it has a minor input as the philosophy of the fund is very much more bottom-up, where valuations based on profit and loss accounts, free cashflows and P/E ratios are seen as a more accurate barometer for future success.
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