Europe equity fund managers are caught between a rock and a hard place as equity markets across Europe fall and redemptions rise to their highest levels since 2008, according to S&P Capital IQ Fund research.
S&P Capital IQ graded portfolios show that over the last 10 days as European equities tumbled, returns for sterling-based investors are being further slashed by sterling’s rapid strengthening against the euro. Most managers report having raised cash from operating levels to between 5% and 10% of total portfolio assets, even higher where permissible.
This latest research says that in the absence of any confident debate, or governmental consensus across Europe, portfolio construction has become highly stock-specific.
“A key finding from our annual review of the Europe sector is that portfolio concentrations are tighter than we have seen for several years as managers focus on their highest-conviction ideas,” comments Peter Fuller, S&P Capital IQ fund analyst.
“Typically, these are companies with the balance-sheet strength to finance growth internally in the absence of bank lending. However, whereas in 2011 it was widely recognised that good companies would overcome poor political governance, managers are now acknowledging that even good companies could be in danger.”
While styles have been maintained, says Fuller, small-cap managers have continued to add more mid-cap exposure while mainstream funds have added defensive stocks where possible. As growth in China has slowed, so too have sales of luxury goods and fashionable brands and the likes of Richemont, Burberry, Audi and so (all key export drivers of performance at various times in 2011), are being replaced by more domestic consumer plays.
“The problem is that many of the traditional defensive names have already been bid higher to the benefit of European equity income managers who were already overweight these stocks.”
Despite improved risk appetite
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