Many investors wish to wait for an established track record before investing in a new fund. However, if it is run by an experienced manager, there is really no reason to wait. Neil Woodford, for example, has an impressive 25-year track record managing UK equities. While some commentators have suggested delaying an investment in his new Woodford Equity Income fund, I see no advantage in postponing exposure to such a successful investor.
Similarly, Chris Rice is an experienced investor in European stocks, having managed money in the region since 1992. He recently founded Sanditon Asset Management, along with Tim Russell, and will shortly launch the Sanditon European fund. He is one of the managers we backed when we first launched the Wealth 150 in 2003, and I am happy to back his new venture from the start.
Our analysis suggested European shares were exceptionally good value when they reached their post-crisis low point in 2012. Euro-pean stockmarkets have recovered well since then although recovery has recently ground to a halt. Negative sentiment towards the region has driven share prices to levels which fail to reflect their profitability and growth potential. But economic news has little bearing on the success of many European companies.
European firms sell goods and services which are desired globally. Nestlé and Heineken sell goods people buy through good times and bad. People the world over aspire to own BMW cars, Louis Vuitton handbags and Rolex watches. In the industrial world, firms such as Siemens are synonymous with quality and reliability.
While economic growth in the eurozone ground to a halt during Q2, European companies overall reported positive earnings growth after three years of steady declines.
Relative to the US, Europe is the cheapest it has been throughout his career, according to Rice. He invests based on where he feels the economy is within the business cycle, reflecting the view that economic activity fluctuates around a long-term trend. He looks to invest in defensive companies such as pharmaceuticals during a slowdown; and companies able to benefit from an improving economy, such as retailers, during a recovery.
Germany, the “powerhouse of Europe”, has already experienced a good stockmarket run and Rice does not feel the shares of German companies currently represent good value. As such, his initial portfolio will be focused on southern Mediterranean countries, such as Spain, where economic data is continuing to show improvement. He suggests with interest rates poised to fall further in the eurozone, economic growth could receive a further boost, benefiting companies such as Spanish telecoms provider Telefonica.
In the near future, Rice feels an element of flexibility will be required with his approach. In a post-QE world, global stock- markets have been affected by more than just the business cycle, with the injection of cash contributing to higher asset prices. With traditional safe haven investments such as bonds, currently expensive in his view, there may not be many places to hide in the next recession. He feels the fund’s ability to hold elevated exposure to large, defensive companies could prove valuable in the future.
The fund has a target of 2 per cent over the return of the FTSE World Europe ex-UK index. Rice has an excellent track record with his previous fund at Cazenove (now Schroders) delivering growth of 240 per cent over his nine-year tenure in comparison with 174 per cent for the average fund in the sector.
In conclusion, do not let the tag “new fund” worry you – provided it is run by an experienced manager. Launching a fund means Rice is starting with a blank sheet of
paper and is able to cherrypick what he feels are the best opportunities across the European stockmarkets. By launching the fund within his own investment company, he is highly incentivised to perform well – the more money he makes for his investors, the more he makes for himself.
Mark Dampier is head of research at Hargreaves Lansdown