Aim: Growth by investing in undervalued European equities excluding the UK, with a bias towards small and medium sized companies in special situations
Minimum investment: Lump sum £1,000, monthly £100 or £50 if investing in more than one Henderson New Star fund
Investment split: 100% in European equities excluding the UK
Isa link: Yes
Charges: Initial 5%, annual 1.5%
Commission: Initial 3%, renewal 0.5%
Tel: 0845 608 8702
The New Star European special situations fund is managed by Henderson New Star’s director of Pan European equities, Richard Pease. It aims for growth but income share classes will also be available as it will generate an income yield of 3 to 3.5 per cent.
The fund will invest in 30 to 50 European companies, excluding the UK, that are in special situations. Special situations may include companies that are in a turnaround or recovery situation, are the subject of a takeover or have been undervalued by the market.
Putting the fund into its market context, Hargreaves Lansdown senior analyst Meera Patel says: “Europe is often overlooked by many investors, but the market is full of opportunities and who better to manage your money than a tried and tested individual like Richard Pease. When you buy this fund, you are buying into his talent.”
Unlike a core European fund, Patel says that this will have a bias towards mid and small caps. “Around two thirds of the portfolio will invest in mid and small caps, while the remaining third will be in bigger companies. It will also have a concentrated portfolio of about 30-50 stocks and the top 10 holdings are likely to be strong conviction bets.”
Patel observes that the top 10 holdings are likely to form around 6 to 7 per cent of the portfolio. “This fund is going to be a punchier fund than Pease’s existing European growth fund. The new fund could be held alongside a core European fund or simply make up the more spicy part of a diversified portfolio,” says Patel.
She feels that the small and mid cap area of the market is a good hunting ground for attractive stocks with significant growth prospects. “To ensure the fund is able to invest in mid and small caps, the fund will be capped at £500m. It can therefore have a ‘get in now while stocks last’ appeal, particularly given the high calibre of the manager,” she says.
An interesting characteristic of the fund for Patel is that it will have an income share class, which may attract investors in search of good yields in times of low interest rates. “The fund expects to generate a net yield of around 3 to 3.5 per cent. The charges are taken from the capital,” she says.
Patel struggles to find any potential negatives about the fund. “Richard Pease is someone I rate extremely highly and he has delivered some exceptional returns over the long term, so there is very little I don’t like about the fund.
“However, it is worth bearing in mind that once his tie-in period with Henderson ends, there is a risk he could leave. Having said that, he is investing a significant amount of his own money into the fund, which suggests he is looking long term. On speaking to him, he seems to be more settled following the merger of New Star,” says Patel.
She notes that while the fund has an income share class, the aim will not be to grow this income over time. However, she thinks that in terms of a total return comprising income and growth, the fund has the potential to deliver superior long-term performance.
Scanning the market for potential competitors Patel says: “There are many good managers within the European sector but funds like the Jupiter European special situations, Schroder European alpha plus and Ignis Argonaut European alpha are among the main competitors.”
Summing up, Patel says: “Richard Pease is a manager we have followed over the years and have recommended his funds. This new fund is now part of our Wealth 150 list, which is a list of our favourite funds in each sector.
Suitability to market – Good
Investment strategy – Good
Charges – Good
Adviser remuneration – Average