It has been a volatile year for European markets, where all have experienced falling performance. Ma...
It has been a volatile year for European markets, where all have experienced falling performance. Managers have been forced to react to minor market rallies and subsequent downturns and to seek firms that can withstand the difficult times.
The Thames River European AAA with $149.53m assets under management was ranked second in the asset class over the year. The fund's performance dropped by 6.35% over the year, with volatility of 5.7.
November was the middle of a year-end rally when the fund employed a market-neutral strategy, according to Neville Reeves, part of the management team for the fund with Tony Zucker and John Ferrario.
'Beta was pretty close to one and we had no particular bias,' he says.
The fund moved from a defensive to a neutral position because the stock market was at an 'emotional low' on 21 November 2001 and there was talk of a recovery. The management team was not convinced of this and so remained neutral while others moved to high beta strategies.
The fund went through December with the same position and then in January moved to defensive style, selling down positions in technology and telecoms, and unstable financials. 'Investment banks and more particularly insurance firms we felt were geared into stock market performance,' says Reeves.
'We felt the year end rally had run its course and moved again to a defensive position.'
The fund remained generally defensive for the rest of the year, with increases in portfolio beta in March, returning to a defensive position in April. This was due to some global economic activity in the first quarter, including inventory rebuilding and better news on the corporate front, according to Reeves.
In April, amid evidence of a downturn, the fund retreated further to a more defensive position. It moved focus to larger firms, ones with balance sheet strength, generating free cashflow, which the managers felt could survive a difficult environment.
This strategy was maintained throughout May, June and into mid-July. A summer market rally in July and August led the managers to take a slightly more neutral position. They particularly liked media companies, where they felt value was emerging.
In September, there was forced selling by insurance companies and pension funds caused by regulators looking at company solvency levels.
This, added to a difficult month, forced down stock prices and the management team's response in October was to become more defensive again.
Recently, the management team has been adding to holdings in unstable financial companies to strategically neutralise the portfolio. Capital rating activity in this sector, much of it necessary among insurance companies, has forced share prices down making them good value, according to Reeves. 'As companies are forced to raise capital it provides good buy opportunities,' he says.
The HSBC GIF European Equity A fund, with $171.5m under management, was ranked 12 over the period. The fund's performance dropped by 9.74% over the year, with volatility of 6.
Andrew Koch, who took over as manager of the fund in September, says it moved from a defensive value bias for most of the period to more aggressive stocks.
'This time last year we were looking at strong chances of economic recovery in the US from a small recession ' driven by restocking after sharp de-stock-ing after September 11,' he says.
Due to this the fund was overweight value cyclicals for most of year, including building materials and industrial stocks.s
The fund was underweight high growth areas, including information technology and software due to a sharp downturn in the sector at the end of 2001 and because the manager felt economic recovery needed to be strong for it to take off.
The fund also held a small but significant amount of cash in the portfolio due to the belief that there would be a general decline market prices.
Those positions were held for most of the period, says Koch. Fear crept into the market later in the year, leading to better value in some sectors and this led the fund into a more aggressive position.
'As stocks fell we went overweight technology and spent a good amount of cash in the portfolio on them,' says Koch.
The Threadneedle European Growth 1 Euro fund, with $627.54m assets under management, is ranked fifth over the period. The fund's returned 6.9% over the year with volatility of 6.58. In the post-11 September period last year investors were negative and the fund bought aggressively, says William Davies, the fund's manager.
'We put money back into the market around 25 September and benefited from the rally,' he says.
'Going into new year we felt recovery would be slow and became more defensive.'
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