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Adviser Fund Index

The Adviser Fund Index panellists are bullish on the German economy, according to the second mid-season AFI questionnaire conducted in February. Seven of the 15 respondents predict that Germany will generate the strongest gross domestic product growth of the major economies over the next 12 months. This is a sharp increase from just one vote in the first questionnaire last July.

Consumer spending data released by Germany’s Federal Statistical Office on March 13 appears to support the panellists’ positive outlook. It shows that spending grew by 2.1 per cent in 2006, beating the increase in household disposable income for the first time since 2000. Total consumer spending was euros 1.35trn (920bn) or euros 16,374 per inhabitant.

However, a number of commentators claim this was the result of consumers bringing forward major purchases to avoid the 3 percentage point hike in German VAT at the start of 2007. This view was supported by further data which showed a sharp decline in household spending in January.

German retail trade turnover was 5.1 per cent lower than in the preceding month in real terms, following adjustment for calendar and seasonal variations. The figure was also 1.4 per cent lower than that seen in January 2006.

Schroders European economist Richard Batley says the data was worse than expected. He is also downbeat on the prospects for household spending over the next 12 months.

He says structural factors in Germany, including higher pensions and healthcare burdens, encourage consumers to save rather than spend. With German household spending key to eurozone economic resilience, the impact could be significant, adds Batley.

AFI equity allocations to Europe excluding the UK fell during the most recent rebalancing last November. The Aggressive index currently has the highest weighting to the region at 13 per cent followed by the Balanced index on 10 per cent and Cautious index on 3 per cent. Despite a reduction in overall weightings to the region, two funds from the Investment Management Association’s Europe ex UK sector were introduced across all three indices.

JP Morgan Asset Management’s Europe dynamic (ex-UK) portfolio, run by Ajay Gambhir, is represented across all three AFIs. The 180m Oeic was underweight in German equities at the end of February, with overweight positions in Norway and the Netherlands. In sector terms, Gambhir was overweight in industrials, oil and gas and consumer goods.

Schroders’ European alpha plus fund had 67 holdings at the end of January, with its biggest positions in Deutsche Boerse, Essilor International and Anglo Irish Bank. The fund, which also appears in each AFI, was underweight in German equities by 7 per cent compared with its FTSE World Europe ex UK benchmark. The 460m portfolio, run by Leon Howard-Spink since his move from Jupiter in 2005, was overweight in Ireland, Switzerland and the Netherlands.


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