Lugo’s European small-mid cap growth fund has its largest weighting in the UK with a 52.7 per cent holding versus the fund’s HSBC smaller Europe (inc UK) index of 29.1 per cent as at April 30.
New-York based Lugo says he is looking for opportunities in real estate and industrials in the UK. He says: “On a real estate side we’re looking at companies who don’t own the real estate but service the industry” and cites online property listing website Right Move as a favoured stock.
Geographically, Lugo is finding more opportunities in Germany in the industrial space and Switzerland and says the UK weighting is likely to be scaled back as he looks to increase exposure to these areas.
Lugo says a strong balance sheet, a strong long-term competitive advantage and attractive prices are the three things he seeks out when applying a bottom-up stock picking approach for the 25-stock strong portfolio.
He says: “In terms of the recovery, from a bottom-up process we’re finding the markets are accounting for a portion of the recovery so it’s already in the prices.”
On a 3 year cumulative basis, Lugo’s fund is down 25.85 per cent against its index which is down 39.47 per cent as at 30 April.
On the recent market rally Lugo is undecided on whether it is sustainable but says he remains focused on the fund’s fundamental long-term stock-picking approach.
He says: “I don’t know if the rally’s going to continue or not, we just stick to our discipline. In terms of valuations, we’re getting to a point where in order to move higher you need proof in the pudding. We’ve come from distressed levels but now that has stabilised the market is fully reflecting that stability.
“Given the stimulus and the changes that have occurred economically we’re just waiting to see if some of this works through the system, especially in Europe to see if the measures were aggressive enough.”