Schroders has noticed that investors are moving towards developed markets and away from the Asian emerging markets. It created the new fund to meet investor demand for a high conviction portfolio that contains only the stocks the fund manager has the most faith in, rather than stocks that are held only because they form part of the benchmark index.
The fund can invest in derivatives but will focus mainly on bigger firms, which have better liquidity than smaller companies. It will focus mainly on Germany, France and the Netherlands, with some exposure to the UK and Nordic regions.
Schroders head of European equities Rory Bateman, who runs the fund, will not be constrained by any benchmark weightings when selecting stocks. He joined Schroders in 2008, having spent 12 years at Goldman Sachs Asset Management. He previously worked as an analyst covering a range of sectors across European markets.
Schroders expects the recovery in the main European economies to continue and that the peripheral countries that have experienced sovereign debt problems will continue to face difficulties. It says profitability and cash generation is strong among many European companies, particularly bigger firms, because they have managed their costs efficiently during the downturn. Valuations are also attractive, as prices have stayed cheap since the financial crisis.
However, the concentrated nature of the fund means the performance of every stock will impact on returns, leaving little scope for poor performers that will hit the portfolio hard. Some investors may prefer an existing fund with slightly more stocks, such as the JO Hambro Capital Management’s European select values fund. This is ranked first quartile by Lipper since launch in 2003 and contains 40 to 60 stocks.